ACCELER ATING
2 0 2 1 A N N U A L R E P O R T
GROW TH
Whether we are helping investment companies operate more
effectively, providing valuable market insights, launching
innovative investment products, or acting sustainably, we
are focused on cultivating collaborative partnerships.
As one of the world’s largest servicers and managers of
institutional assets, our success depends upon the success
of our stakeholders — our clients, employees, investors,
and the communities we serve. Our goal is to help these
stakeholders realize the best possible outcomes for the future.
For more information, visit statestreet.com.
A C C E L E R A T I N G G R O W T H
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Introduction
Message from Our Chairman and CEO
Financial Highlights
Message from Our Independent Lead Director
Business Review
Financial Review (Form 10-K)
A P P E N D I C E S
1
2
3
4
Corporate Information
Board of Directors
Management Committee
Global Locations
T H E Y E A R 2 0 2 1 B E G A N A N D E N D E D
I N A N A T M O S P H E R E O F U N C E R T A I N T Y .
From the persistent challenges of COVID-19 and the efforts of governments,
researchers, and frontline health-care workers to contend with its emerging
variants, to the impacts of extreme weather events, supply chain issues, and
inflationary pressures that threaten the global recovery, 2021 proved to be a
year rife with challenges.
Against this backdrop, State Street employees throughout the world stayed
the course, adapting to new work environments and remaining focused on
delivering for our clients, shareholders, and other stakeholders.
We continued to drive innovation across our business, partnering with our clients
to understand, anticipate, and fulfill their needs; delivering strong and sustainable
investment performance; achieving investment process efficiencies; transforming
our infrastructure for the digital economy; and empowering clients with proprietary
insights and market intelligence to help them make better decisions and, ultimately,
provide enhanced outcomes for their own clients.
Regardless of the uncertainties of our world and its financial markets, State Street
will continue to stay focused on accelerating growth for our clients and delivering
long-term value to our shareholders and investors.
In the pages that follow, you will learn about State Street’s performance and
significant achievements from the past year.
2 S T A T E S T R E E T C O R P O R A T I O N
R O N A L D P . O ’ H A N L E Y
Chairman and CEO
2 0 2 1 A N N U A L R E P O R T 3
ACHIE V ING OUR
S TR ATEGY, DELI V ERING
ON OUR PURP OSE
April 5, 2022
As I write this letter, the Russian invasion of Ukraine
Notwithstanding the new uncertainties in front
is in its fifth week. The human toll of this war is
of us, State Street had been active in business
staggering. One quarter of the overall population and
continuity planning well before the invasion,
more than half of Ukraine’s children are displaced,
preparing our operations, technology, and market
many violently. Over 3.5 million Ukrainians have fled
activities and adding even more to our resilience
the country, generating a refugee crisis in Europe not
posture. We have deepened our outreach and
seen since the late 1940s. Moreover, the post-World
support to clients in connection with the crisis.
War II security framework that enabled 75 years of
We were prepared for the invasion and will continue
peace in Europe and propelled global prosperity is
to work closely with our clients, regulators, and
now uncertain.
market counterparties to navigate what is likely
to be an extended period of uncertainty.
What is certain is that the war and the associated
economic sanctions on Russia will have economic
I cannot discuss the Ukraine crisis without recognizing
and political effects for years to come. Inflationary
the extraordinary actions of my State Street colleagues
and perhaps recessionary pressures are likely
in Poland. We have approximately 6,400 employees
to increase as oil, food, and mineral supplies are
in Poland, in Krakow and Gdansk. From the very first
disrupted. What next phase this conflict may enter
days of the invasion, our employees mobilized to
also remains uncertain and potentially dangerous.
help. They organized refugee relief and humanitarian
supplies. Many have taken the time to travel to the
At the same time, perhaps we can be encouraged by
border of Ukraine to help firsthand with the refugee
the renewed leadership and sense of purpose exhibited
crisis. Many have opened their homes to provide
by important institutions such as the EU and NATO.
shelter. Across State Street, employees around the
Most importantly, President Volodymyr Zelensky and
world have contributed significant sums to help out.
the brave citizens of Ukraine have inspired all of us.
I am awed by the many acts of kindness, some taken
They have reminded us of the value of freedom and
at personal risk, and I am very grateful to call each
democracy, and that these ideals are hard won. We also
of these individuals my colleagues.
are humbled and inspired by the extraordinary acts of
ordinary citizens in nearby countries, who spontaneously
opened their doors and hearts to Ukrainians.
4 S T A T E S T R E E T C O R P O R A T I O N
O U R P U R P O S E I S C L E A R :
To help create better outcomes
for the world’s investors and the
people they serve.
While 2022 has begun with much uncertainty created
Last year also saw continued changes in the ways in
by geopolitical conflict, 2021 proved to be another
which we work and socially engage. While political
unprecedented year. With the world still gripped by the
polarization and civic unease across the United
COVID-19 pandemic, vaccination rollout began early in
States, Europe, and Asia deepened the “trust gap”
2021. However, the much-anticipated linear progress
between citizens and governments, the recognition
out of the health, economic, and social crises spawned
of environmental, social, and governance (ESG)
by the pandemic never materialized. Virus variants
issues as a critical lens through which to view long-
and uneven vaccine distribution and take-up delayed
term investing increased significantly.
the much anticipated “all clear,” and in turn drove
further uncertainty and unrest over the recovery.
Against this backdrop, State Street employees
demonstrated continued resilience and resolve,
Many governments, including the United States,
delivering strong financial results for our
continued with extraordinary fiscal measures and
shareholders. These results were driven by an
accommodative monetary policies, which most
unrelenting focus on our clients, continued execution
likely avoided further economic disruption but also
against our multiyear strategy, a further evolution
enabled inflationary pressures to take hold. Supply
of our culture, and meaningful engagement with the
chain disruptions intensified, which, coupled with
communities in which we operate.
unprecedented turnover in the job market and labor
shortages, triggered inflation rates in the developed
world not seen since the 1980s.
2 0 2 1 A N N U A L R E P O R T 5
State Street’s purpose is clear: To help create better
And our agreement to acquire Brown Brothers
outcomes for the world’s investors and the people they
Harriman Investor Services business (BBH),
serve. To realize that purpose, State Street focuses
subject to regulatory approvals and other closing
on two main businesses: investment servicing and
conditions, would create the world’s largest
asset management. While we are a firm with true
custodian by assets and facilitate even greater
global reach, our scope is narrow and deep, which
adoption of our Alpha platform.
requires uncompromised excellence in both of these
businesses. We have a multiyear strategy designed to
Our Asset Management business, State Street
optimize and advance our competitive position within
Global Advisors, propelled by strong investment
these two franchises, aimed at creating long-term
performance and innovative products and solutions,
value for our shareholders.
had a year of many records, both business and
financial. Its ambition to be a global scaled index and
Our Investment Servicing business continued
systematic investment manager, with strengths in
to bring leading solutions to some of the world’s
indexing, cash, and select active and multi-asset
most sophisticated institutional investors in
capabilities, all underpinned by leading ESG
2021 while deploying our enterprise outsourcing
capabilities, drove strong results for our clients
capabilities, underpinned by our integrated front-
and shareholders.
to-back State Street AlphaSM platform. In addition,
we progressed making our end-to-end operating
model more scalable and configurable, with
designed-in resilience and controls.
6 S T A T E S T R E E T C O R P O R A T I O N
$2.7B
N E T I N C O M E
10.7%
R E T U R N O N E Q U I T Y ( R O E )
F U L L - Y E A R F I N A N C I A L
Global Advisors assets under management
P E R F O R M A N C E H I G H L I G H T S
(AUM) rose to a record $4.1 trillion at year-end,
up 19% year-over-year, driven by higher market
State Street delivered strong financial results in
levels and strong net inflows, primarily from
2021, including record fee revenue, positive operating
exchange-traded funds (ETFs).
leverage, significant pretax margin expansion, and
strong earnings growth, despite the backdrop of
Notably, full-year servicing and management fees
record low interest rates. Net income was $2.7 billion
each reached the highest level on record in 2021,
in 2021, up 11% year-over-year. Full-year diluted
with total fee revenue increasing by 5% year-over-
earnings per share (EPS) was $7.19, an increase of
year and exceeding $10 billion for the first time.
14% over 2020, while return on equity (ROE) was
Foreign Exchange (FX) trading services revenue
10.7%, up 70 basis points from 2020.
decreased 11% year-over-year, primarily reflecting
lower FX market volatility in 2021. Meanwhile,
Assets under custody and/or administration
securities finance revenue increased 17% year-over-
(AUC/A) rose to a record $43.7 trillion at year-end,
year, helped by higher client balances. Software and
up 13% year-over-year, reflecting higher market
processing fees increased 7% year-over-year, aided
levels, client flows, and net new business growth.
by higher Charles River Development (CRD) revenues.
2 0 2 1 A N N U A L R E P O R T 7
$43.7T
5%
A S S E T S U N D E R C U S T O D Y A N D / O R
I N C R E A S E I N T O T A L F E E
A D M I N I S T R A T I O N ( A U C / A )
R E V E N U E , E X C E E D I N G
$ 1 0 B I L L I O N F O R T H E
F I R S T T I M E
Net interest income (NII) decreased 13% year-over-
State Street maintained strong capital levels
year, mainly driven by the impact of lower interest
throughout the year, in part aided by the capital
rates on investment portfolio yields, partially offset
actions taken to finance the BBH Investor Services
by higher loan and investment portfolio balances,
transaction, ending the year with a common equity
as well as higher deposit levels.
tier 1 ratio of 14.3%.
CRD demonstrated strong revenue growth in 2021,
Capital return remains a key part of our medium-
with total standalone revenue1 up 11% year-over-year,
term targets, and we recognize its importance to
its second consecutive year of double-digit growth.
our shareholders. While we temporarily suspended
CRD also demonstrated strong business momentum,
common share repurchases in the third quarter of
with record bookings of $62 million for the year.
2021 in connection with the BBH Investor Services
acquisition, we increased State Street’s quarterly
While we delivered a strong revenue performance
common stock dividend by 10% in 2021.
in 2021, expense management remained a key
focus for us, with company-wide productivity and
engineering efforts achieving approximately
$330 million of gross expense savings in 2021.
Excluding notable items, total expenses increased
just 1%2 year-over-year as these efficiency
savings helped to fund investments in our talent,
technology, and business to drive future growth.
8 S T A T E S T R E E T C O R P O R A T I O N
I am pleased with the strategic operational and financial
progress we demonstrated in 2021. We meaningfully improved
our full-year financial performance across a number of key
metrics, creating value for our shareholders and advancing
us toward our medium-term financial targets.
B U S I N E S S H I G H L I G H T S
In September, we announced our intention to acquire
A N E N H A N C E D I N V E S T M E N T
S E R V I C E S S T R A T E G Y
the Brown Brothers Harriman Investor Services
business. The combination is a financially compelling
use of our capital that will help us achieve scale
and strengthen our market leadership by creating
Within the Investment Servicing business, we
the world’s largest custodian. Consistent with our
enhanced our core strategy, which, when combined
strategy, the acquisition will expand and deepen our
with our strategic pivot to an enterprise outsourced
presence in key non-U.S. markets, further propel
solutions provider across the front, middle, and
our Alpha strategy and accelerate the platform’s
back office, manifested itself in stronger business
technology development, and add strong talent to
momentum and revenue growth in 2021. Our end-to-
our bench, all of which will supplement our focus
end “One State Street” strategic approach is aimed
on client service excellence.
at seamlessly bringing to clients the full breadth of
our capabilities, underpinned by enhanced client
Our Global Markets business expanded into
relationship management. This improved approach
additional Asian and emerging markets while
leverages a new integrated, client-centric operating
continuing to develop creative solutions to address
model across business segments, regions, and
client needs. Its peer-to-peer repo program,
client management to drive more diversified and
launched in 2021, brings new sources of liquidity
sustainable growth while also leveraging insights
to markets in a capital efficient manner. Global
across client segments.
Markets was named No. 1 in research and client
satisfaction in a recent Euromoney survey.
2 0 2 1 A N N U A L R E P O R T 9
In 2021, we continued to expand our State Street
Charles River Development continued to be a leader
Associates® academic and market research arm,
in front-office offerings for institutional investors.
launching our proprietary Insights platform to provide
By year-end, 42 CRD clients had gone live on Microsoft
clients with direct access to our findings and analytics.
Azure’s strategic cloud solution, which provides
Its unique PriceStats® offering enjoyed high demand
greater security and agility, with plans underway
as inflation concerns grew throughout the year.
to have approximately 175 clients migrated to the
platform by 2023.
We secured nine new State Street AlphaSM client
wins in 2021, with 19 Alpha clients signed since
inception. Ten of those clients were live by year-
S T A T E S T R E E T G L O B A L A D V I S O R S ’
end. Further, the Alpha Data Platform, our cloud-
E X C E P T I O N A L R E S U L T S
native data management solution, went live with its
first client in 2021. We were pleased to have Alpha
State Street Global Advisors had an outstanding
recognized by Global Custodian as “Front-to-Back
year in 2021, executing well against our long-term
Partnership of the Year” and as “Best Front-to-Back
strategy and strategic investments in the business,
Office Integration.”
and posting a number of records including revenues,
assets under management, and ETF inflows.
Within our Investment Servicing business, we are
Importantly, State Street Global Advisors’ full-year
continuously improving upon seamless end-to-end
pretax margin expanded by more than 6 percentage
delivery for our clients while also helping them
points in 2021 to a record 32%, expanding the
address their most pressing issues and opportunities.
value of our investment management franchise
Private markets continue to grow rapidly, creating
to State Street’s results.
new servicing requirements, and our clients also face
growing technology and operational challenges.
Full-year 2021 management fees reached a record
Our July acquisition of private markets front-office
$2.1 billion, up 9% year-over-year, driven by higher
software firm Mercatus and launch of a private
average equity markets and strong net flows of
markets portal on Alpha will enable institutional
$196 billion. Our SPDR ETF franchise enjoyed
investors to fully manage the entire life cycle of their
record inflows totaling $107 billion as we gained
infrastructure, private equity, real estate, private
U.S. ETF flow market share. U.S. active ETF AUM
debt, and fund of funds investments through a single
has almost tripled over the past two years and
fully integrated, digital, front-to-back platform.
active ETFs continued to generate interest during
the year, representing two-thirds of all U.S. ETF
industry product launches in 2021; our SPDR
Blackstone Senior Loan ETF had the highest net
inflows of any U.S. active ETF last year.
10 S T A T E S T R E E T C O R P O R A T I O N
B U I L D I N G T H E D I G I T A L R A I L S O F T H E F U T U R E
For these efforts and more, last year State Street
was recognized by Asset Servicing Times with its
Financial services is rapidly digitalizing, and digital
“2021 Industry Excellence Digital Asset Custody
assets are one of the most significant forces that
Initiative” award.
will impact finance and the economy over the next five
years. Digital assets are quickly becoming integrated
into the existing framework of financial services. Thus,
C L I M A T E A N D I N V E S T M E N T R I S K
it is critical that we have the tools in place to provide
our clients with solutions for both their traditional
ESG, and climate in particular, dominated the
investment needs and their increased digital needs.
investment and political spheres in 2021. Fueled
by the U.N. Climate Change Conference (COP26)
In 2021, we launched our State Street DigitalSM
in Glasgow, Scotland, climate has become an
business division designed to help institutional
increasingly important risk factor for investors.
investors, their clients, regulators, and State Street
itself transition to and succeed in the evolving digital
State Street long ago recognized the importance
economy. The new division will build on State Street’s
of climate to our clients and has a track record of
current digital capabilities and aims to include
investment stewardship, product development, and
crypto, central bank digital currency, blockchain, and
engagement with clients, policymakers, and other
tokenization. Our proprietary GlobalLink technology
stakeholders on climate matters. Our interest in the
platform is an integral component of State Street
topic is not driven by our values, but rather by value
Digital and looks to expand into a digital multi-asset
to our clients. Put another way, climate is indisputably
platform to support crypto and other asset classes.
a risk consideration for investors, but it also creates
opportunities for companies to mitigate that downside
Since launching last June, State Street Digital has
risk through innovation and to differentiate themselves
secured several important client wins and
from competitors as a result. Risk is the proposition
demonstrated our ability to innovate in the digital
that more things can happen than will happen.
asset space. For example, State Street worked
Therefore, it is incumbent on investors to consider,
with a client and technology partner to use distributed
evaluate, and act on climate risk and incumbent on
ledger technology (DLT) to tokenize an ETF and
State Street to help our clients do so.
mutual fund. Elsewhere, in collaboration with
Vanguard and Symbiont, we jointly completed the
Why is this issue of such importance to our clients
margin calculation process for a live trade of a
and therefore to State Street? If one considers our
foreign exchange forward contract through the
investors — such as mutual funds, pension funds,
use of Assembly, Symbiont’s DLT, harnessing
and sovereign wealth funds — all of them have long-
the benefits of the technology within this largely
term liabilities that extend over years and in some
manual space.
cases decades.
2 0 2 1 A N N U A L R E P O R T 11
A world that may warm beyond what the best
Given this requirement, State Street operates under
available science tells us is a critical tipping point
two core beliefs: (1) divestment is seldom an effective
is a scenario that poses financial risk to those
tool; and (2) the energy transition is complicated and
investors and requires them to evaluate that risk
needs to be driven by facts and science.
and make decisions.
Divestment has become a rallying cry of protesters
Given State Street’s leading position in two
and a seemingly easy fix for asset owners. Yet
businesses — investment servicing and investment
divestment by itself does not solve anything. Those
management — our engagement and innovation
holdings are bought by others or taken private and
around climate change issues covers the entire
potentially out of public markets scrutiny. A far
industry spectrum. We are therefore well-
preferable option is using share ownership positions
positioned to help our clients evaluate, implement,
and their voting power to engage with portfolio
and measure climate strategies and broader ESG
companies to critically evaluate whether a company
strategies as these become more compelling as an
is taking sufficient steps to recognize and act on
investment proposition.
climate risk. Moreover, in many cases, the very same
companies that are the usual targets of divestment,
State Street continued to lead on climate risk issues in
particularly energy companies, often possess the
2021. As part of our “State Street Total ESG” offering,
know-how that will be required to solve for an
in 2021 we launched our Climate Solutions toolkit,
effective transition.
which includes innovative analytics and measurement
tools that allow clients to monitor climate-related
This leads to our second belief: The energy transition
risks, track net-zero commitments, and address new
will be a complicated journey that will not lend itself
global regulatory reporting requirements. Our original
to simple, straight-line solutions. The transition
research included a study that showed institutional
will require consideration of what solves this global
investors have decarbonized their portfolios by
problem as well as recognition that not all of the globe
approximately 30% since January 2019.
starts at the same point. Getting from high-carbon
emissions to zero emissions may require passing
At the same time, we are concerned about over-
through lower-carbon milestones such as natural gas.
simplification around what is an enormously
complicated problem. Climate change is the world’s
In sum, our role at State Street is to help investors
first truly global problem. No comparative advantage
navigate through climate risk. We do so through
is gained by one country doing something that
data, analytic tools, research, and investment
does not form part of an optimal global solution.
products. Like all investment-related risks, climate
Achieving net-zero carbon emissions and stabilizing
considerations consist of uncertainties. We eschew
temperature increases will require a connected
slogans and politics, preferring instead to focus on
effort that brings together technology, know-how,
helping our clients create long-term value as they
policy, and efficient deployment of capital.
provide capital to the climate transition.
12 S T A T E S T R E E T C O R P O R A T I O N
Building on our myriad achievements from last year,
2022 must be a year of continued and significant
change and growth for State Street. We are redoubling
our efforts on behalf of our clients and shareholders.
We are determined to be the very best at what we do.
L O O K I N G F O R W A R D T O 2 0 2 2
That growth, however, occurs only if we become
a true essential partner of choice to our clients
I am pleased with the strategic operational and
by complementing their investment focus with —
financial progress we demonstrated in 2021.
and demonstrating the value of — our supporting
We meaningfully improved our full-year financial
services. At Global Advisors, we will continue to
performance across a number of key metrics,
deliver excellence in investment management and
creating value for our shareholders and advancing
in the way we serve our clients to drive growth
us toward our medium-term financial targets.
within our asset management franchise.
Looking ahead, I have four core strategic objectives
for 2022, all tied to achieving our vision for the
organization and to position the business for
I I . C O M P L E T E T H E A C Q U I S I T I O N
future success.
I . G R O W R E V E N U E
O F B R O W N B R O T H E R S H A R R I M A N
I N V E S T O R S E R V I C E S
The successful completion, subject to regulatory
We must continue to grow revenue by executing
approval, and integration of the BBH Investor Services
on a number of key strategic priorities in 2022,
acquisition is a key priority. The completion would add
including completion of the pivot to an enterprise
scale but, more important, capabilities and talent that
outsourcer underpinned by our Alpha platform
will drive better client service quality. BBH Investor
build-out; continuing to develop key product
Services is a world-class organization that will build
offerings and capabilities, particularly for private
on and accelerate our strategy.
markets; and further strengthening our sales and
client management capabilities and processes.
2 0 2 1 A N N U A L R E P O R T 13
Following completion, the integration will be governed
This will allow us to deliver increased client quality,
by a “client-first” approach designed to ensure we
capacity, speed, and resilience. In doing so, we will
deliver well for our clients, which we are confident
continue to capitalize upon our cultural strength
will drive better returns for shareholders.
and the lessons in innovation and resilience we saw
I I I . C O N T I N U E T O T R A N S F O R M
T H E W A Y W E W O R K
across our workforce in 2021. Living a culture of
transformation means improving operations, boosting
efficiency and resilience, and driving speed and scale.
A conversation around business transformation
We are building upon the learnings from the past
cannot occur without acknowledging how the
two years to increase operating model efficiency
pandemic has changed the way we live, work, and
and resiliency, modernize technology, and deliver
personally interact. In important ways, the COVID
on risk management excellence. Meeting and
pandemic accelerated certain trends that were
exceeding supervisory and regulatory expectations
already occurring in our industry and others —
around the globe is critical to our success, and we
namely, the further adoption of digital tools and
are focused on the increasing expectations of our
platforms and hybrid and remote work. The
clients and regulators — as well as our own high
technology works, and enables employees to find
standards. To continue to drive increased productivity
ways to be more productive while having increased
and efficiency throughout our organization, we must
flexibility. We embrace these changes and seek
move toward a simplified, scalable, configurable
to maximize the opportunities they afford to both
end-to-end operating model.
employee and employer — while also sustaining
innovation, apprenticeship, and our culture.
14 S T A T E S T R E E T C O R P O R A T I O N
38K
43%
E M P L O Y E E S H A V E C O M P L E T E D
I N C R E A S E I N S U P P L I E R
U N C O N S C I O U S B I A S A N D I N C L U S I V E
D I V E R S I T Y S P E N D
L E A D E R S H I P T R A I N I N G
I V . B U I L D A H I G H E R - P E R F O R M I N G
During the year, we also partnered with the
O R G A N I Z A T I O N
Conference for Women and The Boston Globe to
launch a “Justice, Equity, and Inclusion” quarterly
We will continue to foster a high-performance
series, executed on our MLT Black Equity at Work
culture and a continuously improving employee
certification plan, and announced an independent
experience, which will sustain a dynamic, diverse,
civil rights audit.
engaged, and empowered team with the skills,
capabilities, and desired behaviors required for
Importantly, our ID&E efforts extend to our ecosystem.
future growth. This goal places a special focus
In 2021, our supplier diversity program, which
on how we are able to enhance productivity and
encourages our direct suppliers to procure from
foster a more dynamic culture.
diverse businesses, increased the 2021 total of
direct supplier diversity spend by 43% year-over-
A higher-performing organization by definition
year. In addition, our Global Treasury established
means one that is committed to inclusion, diversity,
underwriting relationships with nine minority-owned
and equity (ID&E). State Street has long believed that
firms, issuing $1.35 billion of bonds in 2021 that
ID&E is critical to business success, and through
were approximately 50% underwritten by minority-,
our 10 Actions Against Racism and Inequality we are
women-, and veteran-owned firms.
driving more urgency and results around these vital
issues. I am proud to say that by year-end
2021 more than 38,000 of our employees completed
unconscious bias and inclusive leadership training.
2 0 2 1 A N N U A L R E P O R T 15
High-performing organizations also recognize the
We demonstrated meaningful progress toward
role they play in the communities in which they
achieving our medium-term targets while delivering
work. Among our key charitable highlights for
value to our clients and shareholders.
2021 is State Street’s commitment to Early College
programs, an initiative that allows primarily low-
Though the challenges faced by our industry and our
income high school students of color to complement
world are very real and sometimes daunting, looking
their studies with tailored college-level coursework
back on all we accomplished in 2021, I am filled with
that is offered at no cost to the student. In addition,
a sense of gratitude. To the scientists, pharmaceutical
related to our 10 Actions initiative, State Street
companies, and health and government agencies
Foundation has taken steps to incorporate racial
that successfully delivered COVID vaccines with
equity as a priority in our corporate philanthropic
near-miraculous speed. To our global colleagues
arm’s grantmaking criteria.
who adapted with grace and dexterity to new,
flexible hybrid work models and went above and
beyond each day during inconstant circumstances.
A C C E L E R A T I N G G R O W T H
To our clients for partnering with and placing
A N D B E I N G T H E B E S T
their trust in us. To our communities, vendors,
and philanthropic partners who ground us in the
I am proud of what we accomplished for our
daily realities of where we live and do business.
shareholders in 2021, including stronger financial
To a diverse and independent board of directors
performance, successful execution against sales
that through its thoughtful guidance and diligent
effectiveness and client retention goals, and
oversight helps to ensure that every decision we
announcing the proposed acquisition of BBH.
make encourages us to deliver on our purpose.
16 S T A T E S T R E E T C O R P O R A T I O N
The theme of this year’s annual report is Accelerating Growth.
In practice, that phrase reflects State Street’s relentless focus
on innovation, leadership, and decisive action, which will
transform our business and our industry for the benefit of all
of our stakeholders.
And I am grateful to you, our shareholders, who see
Being the best and accelerating our growth is only
the value of all that State Street brings and have
possible with a strong team of talented and diverse
joined us on our purpose-driven journey.
employees underpinned by a strong and enduring
culture. As we continue our journey toward
Building on our myriad achievements from last year,
being the best, we will continue to strengthen
2022 must be a year of continued and significant
our culture of accountability, performance, client
change and growth for State Street. We are
collaboration, and inclusion. Achieving this requires
redoubling our efforts on behalf of our clients and
an ongoing commitment to the development of
shareholders. We are determined to be the very
talent for today and for the long term. I am joined
best at what we do. This ambition is large and within
in this goal by a strong and experienced executive
reach. From continuing to operationalize our front-
team, which continues to build out talent throughout
to-back Alpha platform, to our planned integration
our organization. The board of directors and I will
of BBH Investor Services, to advancing State Street
continue to shape the team and ensure that we have
Digital’s ambitious agenda, to our asset management
the human capital required to be the best.
business continuing to achieve strong performance
and results while using its voice and its vote to drive
The theme of this year’s annual report is Accelerating
value for clients, State Street is fulfilling its vision.
Growth. In practice, that phrase reflects State Street’s
As we build toward becoming the biggest and best
relentless focus on innovation, leadership, and decisive
custodian in the world, we are not only delivering
action, which will transform our business and our
on our strategy but helping to shape the future of
industry for the benefit of all of our stakeholders.
securities services.
2 0 2 1 A N N U A L R E P O R T 17
Accelerating growth means helping to position our
To help create better outcomes for the world’s investors
clients for success by enabling them to work better,
and the people they serve is the reason we do this
smarter, and faster than ever before, so that they
work, and that is what accelerating growth looks like.
might deliver on their own future visions. Accelerating
Our desire to meet and exceed these expectations
growth means continuing to lead on ESG issues for
will never be satisfied.
the benefit of our clients. It means pursuing ID&E
goals to fuel our business strategy — creating value
We thank you for your continued partnership and trust.
for our clients and shareholders by bringing different
perspectives and innovative ideas to bear on our
work, making our business more competitive, and
fostering a more vibrant workforce and culture in an
increasingly competitive talent market.
Finally, accelerating growth is a message directly to
you, our shareholders, that speaks to demonstrable
progress State Street is making toward fulfilling our
multiyear strategy and delivering on the promise of
our purpose.
R O N A L D P . O ’ H A N L E Y
Chairman and CEO
18 S T A T E S T R E E T C O R P O R A T I O N
F O R W A R D - L O O K I N G S T A T E M E N T S
This annual report contains forward-looking statements as defined by U.S. securities laws. These statements are
not guarantees of future performance, are inherently uncertain, are based on assumptions that are difficult to
predict and have a number of risks and uncertainties. Further, they speak only as of the time this annual report is
first published, and State Street does not undertake efforts to revise forward-looking statements. Refer to Item 1A
of the Form 10-K included within this annual report for details.
E N D N O T E S
1 For 2021, CRD standalone revenue was $509M including $62M of revenue associated with affiliates, including SSGA, that is eliminated in consolidation for
financial reporting purposes. On a consolidated basis, CRD revenue contributed $448M, including $435M in Software and processing fees and $13M in FX
trading services; revenue line items may not sum to total due to rounding.
2 Results excluding notable items are non-GAAP measures. Refer to the reconciliation of non-GAAP financial information below. In addition to presenting
State Street’s financial results in conformity with U.S. generally accepted accounting principles, or GAAP, management also presents certain financial
information on a basis that excludes or adjusts one or more items from GAAP. This latter basis is a non-GAAP presentation. In general, our non-GAAP
financial results adjust selected GAAP-basis financial results to exclude the impact of revenue and expenses outside of State Street’s normal course of
business or other notable items, such as acquisition and restructuring charges, repositioning charges, gains/losses on sales. For example, we sometimes
present expenses on a basis we may refer to as “expenses ex-notable items,” which exclude notable items. Management believes that this presentation of
financial information facilitates an investor’s further understanding and analysis of State Street’s financial performance and trends with respect to
State Street’s business operations from period to period, including providing additional insight into our underlying margin and profitability. Non-GAAP
financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in conformity with GAAP.
2 0 2 1 A N N U A L R E P O R T 19
2 0 2 1 R E C O N C I L I A T I O N O F N O N - G A A P F I N A N C I A L I N F O R M A T I O N
(Dollars in millions)
EXPENSES
YEAR-TO-DATE
% CHANGE
2020
2021
2021 VS. 2020
Total expenses, GAAP-basis
$8,716
$8,889
2.0%
Less: Notable expense items:
Acquisition and restructuring costs
(50)
(65)
30.0
Repositioning (charges) / release
(133)
3
Deferred incentive compensation
expense acceleration(1)
Legal and other
-
9
(147)
(18)
Total expenses, excluding notable items
$8,542
$8,662
nm
nm
nm
1.4
(1) Amount in 2021 reflects $142 million related to the acceleration of expenses associated with certain cash settled deferred incentive compensation awards
and $5 million related to employee benefits.
‘nm’ denotes not meaningful
20 S T A T E S T R E E T C O R P O R A T I O N
D A M E A M E L I A C H I L C O T T F A W C E T T
Independent Lead Director
2 0 2 1 A N N U A L R E P O R T 21
TO M Y FELLOW
SH A REHOLDERS
April 5, 2022
State Street experienced a year of boldness,
These duties apply equally to evaluating some of the
confidence, and momentum in 2021.
most important strategic opportunities State Street
faces and to lending support by empowering
Leadership and management teams continued
management to think about State Street in dynamic and
to execute with excellence and nimbleness against
progressive ways that help the company accomplish
our differentiated strategy, which is helping
its goals in a measured way.
State Street win in key areas across our franchise
and positioning the business for future success.
Last year was one of strong achievements and business
The company is energized and inspired by all that
highlights aligned with this path. These include the
we achieved together last year, while at the same
realization of a more geographic-focused and client-
time prudent and methodical in our approach,
centric approach for Investment Servicing, the
holding as a beacon what is best for the long-term
continued development of our State Street AlphaSM
creation of shareholder value.
platform, a record year at State Street Global Advisors,
and the launch of our State Street DigitalSM division.
Strategy counts for very little if it is not met with
relentless execution, which is not possible without
September saw the announcement of our agreement
exceptional people. I could not be prouder of the
to acquire Brown Brothers Harriman Investor Services,
leadership, teams, and individual employees who
subject to regulatory approvals and other closing
executed with such determination and consistency
conditions, a financially compelling use of capital for
to make 2021 a remarkable year for State Street.
the long-term benefit of our shareholders that would
It has been my privilege to serve as Lead Director and
The board met regularly with the management team
together with my fellow board members to provide
to evaluate this transaction, weighing its strategic
independent counsel from diverse perspectives to
significance in terms of how it would enhance scale
progress our strategy; oversee operations, risk, and
and strengthen State Street’s market leadership.
create the world’s largest custodian (by assets).
control with rigor; and hold management accountable
for outcomes.
22 S T A T E S T R E E T C O R P O R A T I O N
Ours is a board rich in diversity of
skills and backgrounds, as well
as depth and breadth of individual
experience and expertise. As a
group we are passionately united
in our commitment to helping
State Street become the best at
what we do in our industry and
deliver on its purpose.
2 0 2 1 A N N U A L R E P O R T 23
As State Street continues to deliver on its strategic
To further these efforts, in March 2022, the board
growth agenda, I would like to underscore the
welcomed as its newest member, DonnaLee DeMaio,
global nature of our business. Building upon our
who most recently served as the global chief
Boston-based trust bank heritage, State Street
operating officer of AIG. DonnaLee adds to the board’s
has expanded internationally over the decades;
expertise in the financial services industry, and brings
our clients have global as well as local needs,
experience in audit and regulatory risk management.
and our in-market presence is targeted to meet
those needs. Looking ahead, some of the strongest
Looking back on all that State Street accomplished
opportunities State Street has are geographic,
in 2021, I wish to acknowledge again the strength,
where we can continue to broaden and deepen
perseverance, and wisdom of the company leadership,
global client relationships and impact.
management teams, and employees around the world.
Ours is a board rich in diversity of skills and
continued trust in and commitment to our organization.
I also am grateful to you, our shareholders, for your
backgrounds, as well as depth and breadth
of individual experience and expertise. As a group
we are passionately united in our commitment
to helping State Street become the best at what
we do in our industry and deliver on its purpose:
To help create better outcomes for the world’s
investors and the people they serve. Looking to
2022 and beyond, the board is well positioned
to continue our important work together with
the management team to maintain State Street
on this course.
A M E L I A C . F A W C E T T
Independent Lead Director
24 S T A T E S T R E E T C O R P O R A T I O N
2 0 2 1 A N N U A L R E P O R T 25
A C C E L E R A T I N G G R O W T H
BUSINE S S RE V IE W
26
34
40
48
54
60
68
Institutional Services
State Street AlphaSM
Global Delivery
Global Markets
State Street DigitalSM
Global Advisors
ESG 2021 Highlights
26 S T A T E S T R E E T C O R P O R A T I O N
F R A N C I S C O A R I S T E G U I E T A
EVP, CEO, Institutional Services
2 0 2 1 A N N U A L R E P O R T 27
P A R T N E R S H I P I S P A R A M O U N T
DELI V ERING
ENH A NCED CLIEN T
OU TCOME S
Serving institutional clients across the front, middle, and back office through custody and
related value-add products, the Institutional Services group drives sustainable growth for
our company and our clients across segments and regions.
We empower our clients with market-leading differentiated solutions and thought leadership
that help them make better investment decisions, streamline their operating models, and
manage their cash and assets more efficiently. We build long-lasting partnerships with
our clients in which we co-design, co-invest, and innovate together to help them not only
succeed in today’s environment, but also thrive in the markets of the future.
Our focus on enhancing the solutions and services
we provide to our clients helped us achieve record sales
and exceed aggressive revenue targets in 2021.
28 S T A T E S T R E E T C O R P O R A T I O N
We expanded our relationship coverage model
and focused our thought leadership to deliver
more impact, deeper insights, and industry
best practices. The trust we build by listening
to clients drives value for both parties.
J U L I O E S T E V E Z - B R E T O N
SVP, Chief Experience Officer
E X C E E D I N G P E R F O R M A N C E G O A L S
P U T T I N G O U R C L I E N T S F I R S T
Over the past year, we strengthened the leadership
Throughout 2021, we continued strengthening our
of our client segments and sharpened our focus on
operating structure and transforming our client
enhancing the client experience, establishing a team
management model to improve client sentiment and
dedicated to understanding and improving client
drive sustainable wallet share and revenue growth.
sentiment across the firm. We re-architected our
client relationship model and redefined the country
To that end, we progressed our evolution from
head roles.
a siloed coverage structure to a fully integrated client
management model. Through our “One State Street”
As a result, in 2021, we achieved record servicing
approach, we deliver leading insights and a
wins of $3.5 trillion, with $2.8 trillion of that
consistent, superlative client experience wherein
business to be installed in future periods. We also
complexity is reduced, and proactivity is increased,
generated record servicing fees of $5.5 billion, up
while also bringing to bear our on-the-ground
7 percent year-over-year. Our success was driven
regional knowledge and expertise.
by growth within our Asset Managers, Alternatives,
Insurance, and Official Institutions segments.
2 0 2 1 A N N U A L R E P O R T 29
$3.5T
$5.5B
2 0 2 1 S E R V I C I N G W I N S
2 0 2 1 S E R V I C I N G F E E S
Our enhanced service model combines highly
S T R E N G T H E N I N G O U R
disciplined relationship management with a
C O R E B U S I N E S S
more targeted and data-driven experience focused
on improving outcomes and sentiment. Success is
Our progress in 2021 included strategic product
achieved by systematically measuring client
innovations designed to strengthen our value
satisfaction and using insights from that data to
proposition across our core asset servicing business
both anticipate our clients’ needs and inform
that provides comprehensive front-, middle-,
product, technology, and operations investment
and back-office solutions.
decisions that help solve our clients’ most complex
business challenges.
We remain at the forefront of developments in
exchange traded fund (ETF) markets around the
This new model is designed to accelerate
world, leveraging our expertise, consultative
pipeline growth and increase new business wins
approach, and integrated technology to meet clients’
across segments, clients, and geographies with
expanding ETF servicing needs. For example, in 2021,
clear accountability on our team’s execution.
we were appointed by Harbor Capital Advisors, Inc.
to support the launch of their first actively managed,
fully transparent fixed income ETFs.
30 S T A T E S T R E E T C O R P O R A T I O N
G L O B A L C L I E N T M A N A G E M E N T M O D E L
This ‘One State Street’ model is designed to accelerate pipeline growth and increase business wins
across segments, clients and geographies with clear accountability on our team’s execution.
Asset Owners • Asset Managers • Official Institutions • Alternatives • Insurance
C L I E N T S E G M E N T S
T
N
E
I
L
C
T
N
E
M
E
G
A
N
A
M
S E G M E NT
L U E P R O P OSITION
A
V
O U R C L I E N T S
RE G I O N S
E
X
P
C
L
I
E
N
T
E
R
I
E
N
C
E
R E G I O N S
North America • EMEA • APAC • LatAm
2 0 2 1 A N N U A L R E P O R T 31
Supporting our strategic growth goals in
Latin America, in 2021 we strengthened
our team with several notable additions
and are moving forward with plans to
open offices in Mexico, Colombia, and
Chile in 2022, further demonstrating our
commitment to clients in the region.
M A R C Í A R O T H S C H I L D
Managing Director, Head of Latin America
We were also named servicing agent for a new
As digital assets become increasingly integrated
dual access ETF launched by AllianceBernstein in
into the financial services framework, we launched
Australia. The dual access structure enables active
our State Street DigitalSM division dedicated to
managers to run a single register for unlisted
providing our clients with the infrastructure,
and listed investments, for greater operational
insights, and operating model to support their
and investment efficiencies.
digital investing goals.
To better support our clients’ alternative invest-
ment needs, we launched our front-to-back private
P A R T N E R I N G F O R G R O W T H
markets solution in July, allowing institutional
investors to manage the entire life cycle of their
In 2021, we continued to forge strategic partnerships
infrastructure, private equity, real estate, private
to help our clients achieve their growth ambitions
debt, and fund of funds investments through
and generate sustainable long-term value for
a fully integrated single platform. This solution
our investors. In April, we expanded our relationship
provides whole portfolio exposure to managers
with M&G Corporate Services Limited to provide
investing in both public and private markets.
them with outsourced middle-office services.
32 S T A T E S T R E E T C O R P O R A T I O N
As we celebrate 40 years in Asia Pacific,
we’re poised to become a growth
accelerator for clients, helping them
leverage the region’s vitality and diversity.
M O S T A P H A T A H I R I
EVP, Head of Asia Pacific
40YRS
S E R V I C I N G C L I E N T S
I N A S I A P A C I F I C
The agreement builds on a 10-year strategic
partnership with M&G in which we extended our
current fund accounting and custody services
for their wholesale fund ranges to provide middle-
office services, including portfolio services,
reference data, cash reporting, transaction
management, asset servicing, and recordkeeping.
This initiative exemplifies one of the many ways
we are helping asset managers remain focused on
their investment process, lower their costs, improve
efficiency, and deliver desired investment outcomes.
2 0 2 1 A N N U A L R E P O R T 33
Furthering our commitment to supporting clients
G E N E R A T I N G L O N G - T E R M V A L U E
with our comprehensive suite of environmental,
social and governance (ESG) services, we launched
Our clients have faced significant challenges during
a strategic engagement with S&P Global Trucost
the past two years. The pandemic has been a catalyst,
that combines the power of State Street’s ESG risk
leading the entire industry to reassess its operational
analytics and reporting capabilities with Trucost’s
efficiency, resilience, and business relationships.
climate data and analytics. Through this innovation,
Decisions that were postponed in the first year of
we are providing clients with access to carbon
the pandemic are now being accelerated. Through
footprint and other environmental data mapped to
ongoing, in-depth conversations with our clients, we
their portfolios, as well as Task Force on Climate-
know that they want long-term partnerships to help
related Financial Disclosure (TCFD) reporting
them be more resilient and competitive and respond
features to help them navigate the challenges of
more effectively to their priorities.
the ever-shifting global ESG regulatory landscape.
We will continue to sharpen our focus on delivering
In July, we formed a new strategic alliance with
long-term value for our clients and investors in
First Abu Dhabi Bank, the largest bank in the United
2022 and beyond. Our strategic focus for the future
Arab Emirates. The alliance creates a full-service
includes refining our solutions to meet increasing
enterprise offering for institutional investors
client demands around ESG, private markets,
located in the Middle East and North Africa, and
enhanced data aggregation and reporting, and
those who invest in the region. Clients are looking
efficient operating models.
for financially secure and operationally resilient
partners who can manage the non-core elements
Understanding that our success is driven by serving
of their business, and help them achieve operational
as a trusted strategic partner to our clients, and
efficiencies, reduce costs, mitigate risks, and navigate
by providing them with the innovative solutions they
complex regulations.
need, we will continue to implement our integrated
client management model across business segments
They are also eager to access global best practices
and regions to drive more diversified and sustainable
and scale from a partner who understands the
growth for our clients and our company.
local business environment. By leveraging the best
of both global and regional expertise offered through
this collaboration, we provide a truly customized
and flexible service model that proactively drives
innovative solutions to meet our clients’ needs.
34 S T A T E S T R E E T C O R P O R A T I O N
L O U M A I U R I
EVP, Chief Operating Officer
2 0 2 1 A N N U A L R E P O R T 35
FUELING GROW TH
S TR AT EGIE S
ACROSS THE
INVESTMENT LIFE CYCLE
State Street AlphaSM is the first front-to-back asset servicing platform from a single provider
for institutional and wealth management firms. Alpha helps our clients manage their
investment products and business lines in one place, and is at the center of our strategy.
It starts with our purpose, which is to help investors around the world create better
outcomes for themselves and the people they serve, and to do so with the inherent value
State Street delivers as a trust bank and custodian to our clients.
In 2021, we continued to create better and deeper ways to partner with our clients and broaden
our relationships, supporting their front- , middle- , and back-office needs, and providing them
easy access to aggregated data, analytics, and real-time insights, so they can collaborate with
confidence, work faster, and make better decisions. By outsourcing technology and operations
to a strategic partner with deep expertise and global scale, our clients can remain focused on
serving their clients and achieving their business goals.
With Alpha, we’re redefining how the industry services
institutional investors and wealth managers.
36 S T A T E S T R E E T C O R P O R A T I O N
9
N E W C L I E N T M A N D A T E S
19
A L P H A C L I E N T S
A T Y E A R - E N D
D R I V I N G P E R F O R M A N C E
A N D G R O W T H
Alpha was instrumental in driving enterprise-wide
growth and revenue through a strong cross-product,
new business pipeline and broader market adoption
in 2021. With nine new client mandates announced
in 2021, as of year-end we had 19 Alpha clients,
10 of which were already live on the platform.
Alpha was also recognized with multiple industry
accolades during the year, including “Best Front-to-
Back Office Integration” by WatersTechnology Asia
Awards; “Investment Excellence in Tech Innovation”
by Global Investor Group, and “Front-to-Back
Partnership of the Year” by Global Custodian.
As part of our front-office capabilities with Charles
River Development, we accelerated software-as-
a-service (SaaS) conversions with the adoption of
new modules and migration to Microsoft Azure,
increasing annual recurring revenue and reducing
costs associated with migrating to the cloud.
Our growth focused on new asset classes like
private market investments, as well as new partners,
distribution vehicles, jurisdictions, and clients —
driven by enhanced capabilities, innovative
technology, and greater operating efficiencies.
2 0 2 1 A N N U A L R E P O R T 37
2021 was a pivotal year for State Street
Alpha, as leading investment managers
around the world committed to underpin
their growth strategies with our cloud-
based, enterprise outsourcing platform.
J O H N P L A N S K Y
EVP, Head of State Street AlphaSM
S T R E A M L I N I N G T H E
D A T A E N V I R O N M E N T
The platform also eases the friction resulting
from the extensive data movement within the
industry, which requires frequent reconciliation.
Data is central to helping investment and wealth
It leverages technology and content from industry
managers make better decisions, meet regulatory
innovators like Snowflake and Microsoft Azure,
obligations, and serve their investors. In 2021,
providing a simplified, cloud-enabled approach
we continued to expand our Alpha Data Platform
to data management.
to help clients capture and leverage the growing
volume, velocity, and variety of data available.
We help clients capture and curate data across
the investment process, from portfolio manage-
The Alpha Data Platform speeds time to insight by
ment to post-trade operations, and enhance it
providing a centralized, single source of truth across
with data from hundreds of third-party providers.
the enterprise. Our scalable data cloud captures
This empowers investment and operations teams
the breadth and depth of data generated across both
with trusted, accurate data that helps drive new
the client’s organization and external sources.
insights and efficiencies.
38 S T A T E S T R E E T C O R P O R A T I O N
20YRS
O F I N S T I T U T I O N A L K N O W L E D G E
A C R O S S A L T E R N A T I V E S S E R V I C I N G
A L P H A F O R P R I V A T E M A R K E T S
The new solution is enabled by our July acquisition
of Mercatus, a premier front- and middle-office
Converging business models, and diversification
solutions and data management provider for private
into different asset classes and geographies, have
market managers.
increased the complexity of portfolios and capital
acceleration into private markets. Technology
For our clients turning to private markets in pursuit
is a critical factor helping the modern investment
of greater diversification and higher risk-adjusted
manager simplify day-to-day operations and
returns, Alpha for Private Markets harmonizes data
provide a holistic view of a fund’s life cycle while
and provides a complete view of the investment life
stripping out complexities.
cycle. With scalability and flexibility at its core,
During the year, we launched State Street AlphaSM
to investor demands, and the capabilities needed for
it enables investment centralization, rapid response
for Private Markets, which we expect will increase
tomorrow’s growth.
our market share in what is already a fast-growing
servicing segment for State Street.
Integrated and interoperable, Alpha for Private
Markets provides a unified portfolio view of
both public and private assets. One office, total
transparency, better investment decisions —
all delivered on a single platform.
2 0 2 1 A N N U A L R E P O R T 39
Charles River’s model of client engagement
based on partnership and innovation has
fueled the demand for our superior front-
office technology and supports the growing
number of Alpha clients.
C A R O L I N E O ’ S H A U G H N E S S Y
SVP, Head of Charles River Development in EMEA
L O O K I N G A H E A D
By providing our clients with the tools they need to
better leverage their data and make data-informed
decisions in real time, Alpha is poised to continue
fueling growth for our entire enterprise, our clients,
and those they serve.
As we look forward to 2022 and beyond, we will
continue to expand Alpha’s capabilities to meet
the evolving needs of our clients with a focus on
delivering valuable insights, services, and technology
to uncover new levels of interoperability, scale,
flexibility, and accelerated growth.
40 S T A T E S T R E E T C O R P O R A T I O N
A N N F O G A R T Y
EVP, Head of Global Delivery
2 0 2 1 A N N U A L R E P O R T 41
A D V A N C I N G O U R G L O B A L O P E R A T I N G M O D E L
BUILDING SCA LE A ND
RE SILIENCE
State Street’s Global Delivery group manages the organization’s custody, accounting,
alternatives, middle-office, transfer agency, and client service operations. From our offices
around the world, our team of approximately 20,000 employees seamlessly delivers
integrated solutions that help clients enter new markets, find additional sources of growth
and innovation, better leverage increasing volumes of data, and meet regulatory obligations.
In 2021, we further enhanced and simplified our end-to-end operating model to support our
resiliency and business growth, increasing operational efficiency while maintaining a robust
risk management protocol.
We focused on simplification to improve the scalability and configurability of our operating
environment and made significant progress in further digitizing our process flows,
enhancing our control environment, introducing new cybersecurity risk mitigation measures,
and implementing additional data and operational safeguards.
Our ability to deploy technology to create scale
while maintaining client centricity is one of our
key differentiators.
42 S T A T E S T R E E T C O R P O R A T I O N
Protecting our clients’ data is a top priority.
Through the strong partnership we have
developed across our Global Delivery and
Cyber organizations, we are able to quickly
adopt new controls and safeguards seamlessly
into our service delivery structure.
L I Z J O Y C E
EVP, Chief Information Security Officer
S T R E N G T H E N I N G O U R C A P A B I L I T I E S
Throughout the year, we continued to embed
additional multilayered defenses to minimize
Technology and cyber are critical pillars of our
risk, protect sensitive data, and meet compliance
Global Delivery operations, providing a strong
obligations. We enhanced our framework to
foundation for our multiple processing centers
deliver controlled, intelligence-led cybersecurity
around the world.
tests and progressed our resiliency programs.
In 2021, we expanded our Global Technology and
We also established a new production management
Cyber teams, adding seasoned experts in core
function and enhanced our business continuity
competencies including cybersecurity, cloud
capabilities for applications supporting our most
engineering, and global payments, to strengthen
critical business services.
our capabilities and boost our technology
execution capacity.
2 0 2 1 A N N U A L R E P O R T 43
17K
$10M
F U N D S W I T H A C C E S S T O
S A V E D F R O M N A V
E N H A N C E D P R E D I C T I V E
A U T O M A T I O N
B E N C H M A R K S F O R N A V S
A D V A N C I N G P R O C E S S A U T O M A T I O N
Recently deployed application programming
interfaces (APIs) reduced manual touches to increase
Automation continued to deliver strong benefits in
straight-through year-over-year processing rates
key areas of Global Delivery. Notably, our efforts
for transactions and derivatives from 96 percent
to leverage artificial intelligence (AI) and machine
to 97 percent, and from 82 percent to 86 percent,
learning have helped us create enhanced predictive
respectively. And we are more than midway through
benchmarks of net asset value (NAV) performance,
our journey to deploy this fully automated NAV
which is now available for more than 17,000 funds.
calculation and reporting process, which we expect
to be complete by the end of 2023.
NAV automation saved approximately $10 million
over the past year through increased adoption
This initiative has been especially successful with
of the driverless NAV initiative, an end-to-end
Europe, the Middle East and Africa (EMEA) funds.
automation of the NAV production and dissemination
The number of EMEA-domiciled daily funds on end-to-
process that is foundational to supporting key
end NAV automation doubled from approximately
Global Delivery objectives.
30 percent in 2020 to approximately 60 percent in 2021.
44 S T A T E S T R E E T C O R P O R A T I O N
As a technology-forward financial institution,
State Street is focused on continuous digital
transformation to deliver the financial
infrastructure of the future to our clients and
to the market.
B R I A N F R A N Z
EVP, Global Chief Information Officer
Additionally, we have experienced a 25 percent alert
In 2021, we simplified our operating model by
reduction year-over-year globally through increased
deploying a more resilient, automated environment
automation, inclusive of AI.
D R I V I N G G R E A T E R E F F I C I E N C I E S
to drive client quality and productivity, with an
agile footprint that enables rapid enhancement
and standardization.
These innovations bolstered productivity levels,
Advances in the way we leverage digital and other
increasing our capacity to serve clients more
technologies to streamline our business unlocked
efficiently and grow margins.
efficiencies and reduced operating costs, helping
to drive the operations- and technology-related
We continued to operate an advanced technology
savings of approximately $200 million in 2021 —
network designed to foster resiliency and productivity,
savings that can be reinvested and redeployed to
enable timely innovation, and drive IT costs down
fuel other growth-enhancing capabilities.
as a percentage of revenue. By embedding a division-
wide productivity mindset and measuring individual
productivity performance for approximately 10,000
employees, we continued to unlock capacity across
the entire organization in 2021.
2 0 2 1 A N N U A L R E P O R T 45
6
$200M
P R O C E S S I N G C E N T E R S
T O T A L O P E R A T I O N S A N D
G L O B A L L Y
T E C H N O L O G Y - R E L A T E D S A V I N G S
D E S I G N I N G A S T A T E -
O F - T H E - A R T W O R K P L A C E
The COVID-19 pandemic has spurred us to transform
the way we work — now and in the future. To lead
with a simplified and streamlined working experience,
enabling us to retain and attract top talent
that will help drive better outcomes for our clients.
this journey, we stood up a dedicated team to
S H A P I N G T H E F U T U R E
design and implement our return-to-office plans
and future workplace initiatives. Fundamentally,
Leveraging nearly a century of innovative delivery
these efforts have been focused on improving the
expertise and some of the world’s most sophis ticated
employee experience while maintaining our high level
technological know-how, we have developed the
of business continuity and client service quality.
platform, partnerships, and solutions to streamline
and deliver data, analytics, and real-time insights
With the goal of exhibiting industry leadership in
under one roof to help our clients achieve their unique
flexible work, we are redefining flexibility across our
business objectives. As part of our commitment
company. Enabled by a “mobile-first” technology
to improving client outcomes, we will continue to
strategy, we have established four core levers within
leverage the transformative power of automation,
our organization to lean in on flexibility — culture,
AI, and machine learning to generate operational
learning and development, benefits and policy design,
efficiencies, service quality enhancements, and
and workplace design — to empower our employees
operational improvements for our clients.
46 S T A T E S T R E E T C O R P O R A T I O N
We will continue to invest
in our people and cultivate
a culture of innovation
and delivery excellence in
which people thrive and
contribute their best work.
2 0 2 1 A N N U A L R E P O R T 47
We’re focused on continually improving
our service delivery through a deep
understanding of our clients, our ability to
innovate and evolve, and the expertise and
talent of our teams around the world.
R E N E E L A R O C H E - M O R R I S
SVP, Head of Integration Management Office for Brown
Brothers Harriman Investor Services Integration
As we look ahead, we are constantly refining our
organizational structure to enable greater client
focus, align and improve our control environment,
and introduce new functions to strengthen our
client interactions and enterprise connectivity.
We will continue to invest in our people and cultivate
a culture of innovation and delivery excellence in
which people thrive and contribute their best work.
Importantly, we will continue to work closely with our
clients to understand every facet of their business so
we can better anticipate their future needs and serve
them as effective partners in growth.
97%
Y E A R - O V E R - Y E A R S T R A I G H T -
T H R O U G H P R O C E S S I N G R A T E S
F O R T R A N S A C T I O N S
86%
Y E A R - O V E R - Y E A R S T R A I G H T -
T H R O U G H P R O C E S S I N G
R A T E S F O R D E R I V A T I V E S
48 S T A T E S T R E E T C O R P O R A T I O N
A N T H O N Y B I S E G N A
EVP, Head of Global Markets
2 0 2 1 A N N U A L R E P O R T 49
FUR THERING
INNOVATION IN GLOBA L
IN V E S TMENT M A RKE T S
Our Global Markets business provides institutional clients with value-added solutions in
financing, liquidity, and proprietary market research. The team’s comprehensive liquidity
offering supports clients’ foreign exchange, electronic trading, portfolio restructuring, and
currency hedging requirements across multiple open-source architecture platforms.
We back our multi-asset class trade execution capabilities with advanced technology to help
enhance and preserve the value of our clients’ portfolios.
Through data-driven research, our clients gain insight into investor behavior, media
narratives, and real-time economics that interact to drive markets. With teams in 26 global
operating sites serving clients in approximately 80 markets, we provide a robust global
network and local market expertise that keep our clients connected to market developments
as they happen.
In 2021, we continued to partner with clients to provide services that meet their investment
management process needs, and differentiated ourselves in Global Markets by enhancing
capabilities, expanding our global network, and broadening our research agenda —
all while continuing to deliver value to our shareholders.
Our culture of product innovation and client partnership goes
far beyond supporting individual trades to accelerate long-term
growth for our clients and for us.
50 S T A T E S T R E E T C O R P O R A T I O N
M E E T I N G O U R C L I E N T S ’ N E E D S
Looking forward, this model will be the foundation
W I T H E F F E C T I V E S O L U T I O N S
for our own proprietary securities lending platform
to external counterparties and represents an
Throughout the year, we continued to strengthen
opportunity to offer new, more complex trade
our global trading platforms by introducing new
workflows (e.g., Auction) to the borrower community.
solutions to help our clients unlock the potential of
ever-changing markets. To meet our clients’ most
sophisticated needs and support State Street’s
O U T S O U R C E D T R A D I N G S E R V I C E S
goal to become the enterprise outsourcer of choice,
we expanded our electronic trading platforms and
We expanded and differentiated our currency
outsourced trading services.
management service, delivering hedging solutions
E L E C T R O N I C T R A D I N G P L A T F O R M S
to investment managers and asset owners.
Our agency-only share class and portfolio hedging
products allow institutional investors to manage
currency risk and efficiently distribute products
Working closely with our clients to provide
across borders.
differentiated execution services, we expanded
our algorithmic trading offerings, introducing
Also in 2021, we expanded our multi-asset class
new solutions for foreign exchange and equities
outsourced trading offering, leveraging our global
to improve flexibility of execution strategies and
trading technology and robust liquidity network
enhance access to liquidity.
to provide customized, holistic trading solutions.
This service provides clients with broader access
Building on our market-leading position in sponsored
to markets and new asset classes while reducing
repo and securities lending businesses, we launched
costs and expanding their access to liquidity.
a new electronic peer-to-peer repo trading platform
designed in close collaboration with buy-side clients.
We also enhanced our Collateral+ service, a holistic
The platform simplifies overnight and term repo
collateral service that helps asset managers and
trading between counterparties and reflects our
owners calculate, navigate, and optimize their
commitment to creating innovative solutions tailored
collateral, including uncleared OTC derivatives,
to the buy-side market.
FX options, swaptions, and hedging trades.
We also created a peer-to-peer electronic trading
To provide clients with deeper insight into the
channel for enhanced custody and agency lending
optimal placement of collateral and the lowest
to improve liquidity. This channel has seen volume
transaction cost routes, we added pre- and
increase exponentially for enhanced custody while
post-trade collateral inventory optimization,
internalizing trade maintenance and operational work.
as well as margin analytics capabilities.
2 0 2 1 A N N U A L R E P O R T 51
No. 1
No. 1
I N C U S T O M E R S A T I S F A C T I O N
I N M A C R O A N D Q U A N T I T A T I V E
F O R R E A L M O N E Y C L I E N T S *
R E S E A R C H *
Embedding ESG capabilities as core offerings
S T R E N G T H E N I N G O U R
continues to be a key focus. In securities finance,
G L O B A L N E T W O R K
we partnered with State Street Global Advisors
to launch the ESG Securities Lending Comingled
Recognizing the increasingly global nature of our
Cash Collateral Reinvestment Strategy, and
clients’ needs, we continue to broaden our franchise
we increased representation of ESG funds in
capabilities in high-growth geographic markets,
currency management.
starting with offering FX services in emerging
currency markets.
L E A D E R S H I P I N C O R E O F F E R I N G S
Latin America was a key region of focus in
2021. We extended our footprint in the region,
Our leadership position in foreign exchange is a
establishing trading capabilities in Brazil to
testament to our success in meeting our clients’
support global clients with our solutions and
needs through continuous innovation. In the annual
scale. We now have 21 trading and sales locations
Euromoney Magazine FX survey, we were named
globally, which provide liquidity and onshore
No. 1 in Customer Satisfaction for Real Money Clients
access to our clients.
for the second consecutive year and No. 1 in Macro
and Quantitative Research.* This illustrates our
In Europe, we increased our presence by establishing
leading position as a top-10 FX provider globally.
market-making capabilities in Germany. In Asia
The creativity and ingenuity of our employees are
conversion arrangement involving onshore yuan
critical drivers of our success, and we continue to
(CNY) under Northbound Bond Connect.
Pacific (APAC), we began an enhanced currency
invest in technology and people to drive the long-
term growth of Global Markets.
* Euromoney Magazine 2021 FX Survey
52 S T A T E S T R E E T C O R P O R A T I O N
Capital markets in APAC are maturing and the
investable universe is expanding amid a
complex and nuanced regulatory environment.
We’re helping clients navigate these challenges,
providing liquidity across FX, securities
lending, and outsourced trading to support their
investments into and out of the region.
M I C H E L E H A R D E M A N
EVP, Head of Global Markets in APAC
As an FX settlement bank in the China-Hong
D E L I V E R I N G A N
Kong Bond Connect Scheme with membership
I N F O R M A T I O N A D V A N T A G E
in the China Foreign Exchange Trade System
(CFETS), we offer clients direct onshore
Delivering exclusive, high-value research to our
Chinese yuan (CNY) and offshore Chinese
clients is an essential differentiator for State Street,
yuan (CNH) liquidity in spot, forward, and
helping to strengthen our leading position as a sell-
swap markets. We also expanded our currency
side provider. In 2021, we continued to build on the
management presence by adding portfolio
success of State Street Associates,® our academic
management capabilities in Australia.
and market research arm that partners with some of
the world’s leading academics in the areas of investor
behavior, asset allocation and risk, ESG investing,
private equity, inflation and economics, and media
sentiment. We further strengthened our research
capabilities by launching our Insights research
platform, which provides clients with direct access
to our latest investment ideas and analytics.
2 0 2 1 A N N U A L R E P O R T 53
21
2
G L O B A L T R A D I N G A N D
S A L E S L O C A T I O N S
N E W A C A D E M I C
P A R T N E R S A D D E D
We also added two academic partners to our team.
G R O W T H T H R O U G H I N N O V A T I O N
With the growing focus on the digital economy,
we have partnered with Antoinette Schoar, an
In Global Markets, we partner with our clients
economist and professor at the Massachusetts
to better understand and anticipate their needs, to
Institute of Technology. Schoar is an expert in
make their investment management process more
corporate finance, organizational economics, and
effective and efficient. This has been the inspiration
entrepreneurship who will provide unique insight
behind our growth and the driver of deep, lasting
for our thought leadership focused on navigating
relationships with our clients.
the risks and opportunities in blockchain and
cryptocurrencies. Harvard Business School
Looking ahead, we remain committed to leveraging
Professor and economist Robin Greenwood also
this spirit of innovation and leadership, along with
joined us to advance research on macro-level
our market position, in conjunction with our
topics such as central bank policy, equity investing,
Charles River Development front-office capabilities
financial crises, and behavioral finance.
and our State Street AlphaSM platform, to deliver
industry-leading solutions to meet our clients’ most
pressing challenges.
54 S T A T E S T R E E T C O R P O R A T I O N
N A D I N E C H A K A R
EVP, Head of State Street DigitalSM
2 0 2 1 A N N U A L R E P O R T 55
T H E F U T U R E I S N O W
UNLOCKING
OPP OR T UNIT Y IN THE
DIGITA L ECONOM Y
With the June launch of our State Street DigitalSM business, we took a major step forward
in realizing our vision of operating the industry’s most efficient digital market infrastructure,
built to help our clients grow and thrive in the new digital economy.
With State Street Digital, we are building on our history of innovation and a strong foundation
in the digital services space to support clients’ needs across a full spectrum of digital assets
and new platforms, including digital cash, cryptocurrency, central bank digital currency
(CBDC), stablecoins, smart contracts, blockchain, and other distributed ledger technologies,
as well as tokenization.
Our aim is to create an amazing digital experience to
enable our clients to transition and thrive in the new
digital economy.
56 S T A T E S T R E E T C O R P O R A T I O N
By embracing innovations in blockchain,
DeFi, and the crypto ecosystem, we have a
rare opportunity to completely rethink our
technology and operational framework to
accelerate our transformation and deliver
the best possible experience to our clients.
A M A N T H I N D
EVP, Chief Technology Officer, State Street DigitalSM
L A Y I N G A S T R O N G F O U N D A T I O N
Our major focus is on establishing a State Street
digital wallet that will enable our clients to custody
The investment industry’s adoption of digital assets
their digital assets in combination with their
and cryptocurrency is creating significant investment
traditional assets directly with State Street.
opportunities and the potential for disruption. As the
regulatory and risk landscape begins to crystalize,
We are also developing new platform capabilities
the digitization of assets and the electronification
to offer superior security administration capabilities
of transactions and workflows require new market
(such as ETF services) and support the financing of our
infrastructure and solutions. State Street Digital is
clients’ digital holdings. And we are complementing
focused on meeting these needs.
our digital asset servicing with digital trading and
liquidity management, as these functions will be in
We are strengthening our core banking operations by
high demand in a digital asset marketplace.
digitizing manual processes, and building on State Street’s
strength and security to develop digital market
infrastructure solutions for institutional investors.
2 0 2 1 A N N U A L R E P O R T 57
To continuously upgrade and adapt our product
The platform is designed to deliver sizable benefits
offerings as these new markets evolve rapidly, our
to our clients such as an improved price discovery
digital team is focused on ensuring long-term control
solution for FXConnect buy-side clients: FXConnect
of key infrastructure providers of our core services,
Market Monitor.
by contemplating a path to control through strategic
investments and partnerships.
This enhanced tool will continue to leverage streaming
We are excited about the wide range of digital
view of their liquidity providers, driving improved
initiatives underway and we were proud to be named
decision-making and execution outcomes. Currenex,
“Digital Asset Custody Initiative of the Year” by the
for example, not only handles FX and fixed income,
Asset Servicing Industry Excellence Awards in 2021.
but also bridges fiat and crypto markets.
price feeds and market data to give clients a curated
We also continued to expand our BestX transaction
A D V A N C I N G O U R D I G I T A L T R A D I N G
cost analysis platform that helps clients drive
A N D L I Q U I D I T Y C A P A B I L I T I E S
enhanced execution outcomes and provides
At the heart of State Street Digital solutions is
BestX developments in 2021 included the addition of
our proprietary GlobalLink technology platform.
equities and digital capabilities to our FX and fixed
transparency and insights into their trading process.
GlobalLink brings together the trading and liquidity
income offering.
infrastructure our clients need with digital custody
and tokenization capabilities.
Our GlobalLink platforms are key to us forging ahead
as we grow and enhance our peer-to-peer strategies,
In March, we expanded our Fund Connect ETF digital
which help create new liquidity venues for our clients
platform, an integral component of the GlobalLink
and investors worldwide. We started with a peer-to-
product suite. By opening the platform to all ETF
peer repo marketplace, and will move into different
issuers, authorized participants, and order takers,
asset classes to give clients a stepping stone into
we are better prepared to support clients’ end-to-end
digital finance.
needs, from semi-transparent to crypto exchange
traded products (ETPs).
The launch of our GlobalLink FX trading technology
platform, announced in November, combines our
powerful execution and post-trade platforms
(FXConnect, Currenex, and TradeNeXus) into a single,
integrated execution and workflow solution.
58 S T A T E S T R E E T C O R P O R A T I O N
U N L O C K I N G T H E N E W
D I G I T A L E C O N O M Y
Tokenization is opening many doors as it democratizes
global investing. By turning any asset into a digital
asset — including a fractionalized portion of an
asset — it becomes more accessible to investors,
more easily traded, and instantaneously settled.
We believe we have an opportunity, because of
our scale and robust risk frameworks, to help clients
leverage tokenization capabilities and access these
new pools of assets in a responsible way as they
look to take advantage of the benefits they offer.
Expanding client reach, accelerating distribution
speed, and reducing counterparty risk through
frictionless settlement and instantaneous collateral
movements are just some of the opportunities on
offer. Just as importantly, tokenization promises
to unlock trapped liquidity in asset bases such as
private equity, private credit, real estate, or other
tangible assets that are otherwise simply sitting
on the books until they are sold.
State Street Digital is currently developing
tokenization-as-a-service capabilities to provide our
clients access to these efficiencies in key segments
such as private markets and funds as regulatory
conditions allow these new liquidity opportunities.
To better serve our clients’ evolving
digital needs, we made significant
enhancements to GlobalLink,
positioning the platform to deliver
next-generation trading, cash,
and ETF distribution.
M A R T I N E B O N D
EVP, Head of GlobalLink
2 0 2 1 A N N U A L R E P O R T 59
C U L T I V A T I N G K N O W L E D G E
B U I L D I N G T H E F U T U R E O F F I N A N C E
F O R T H E D I G I T A L A G E
State Street has always been at the leading edge
The digital economy is changing what our
of what is next, and that is what our clients expect
stakeholders need to know to succeed in tomorrow’s
of us. We see digital assets as the next wave
financial markets. As digital assets become more
of efficiency and long-term value that will only
prevalent, education becomes more essential.
continue to grow as a transformative force for the
Our 2021 Digital Finance Survey revealed that
financial industry. We are making the investments
while more than half of those surveyed (56 percent)
to give our clients clarity in an increasingly digital
expected cryptocurrencies to be a common feature
world. The fast-changing pace and ever-shifting
of modern portfolios, few respondents admitted to
landscape of digital assets is overwhelming for
having detailed knowledge of the technology and
many investors and asset owners. The work ahead
concepts that underpin digital assets.
for State Street Digital is all about simplification for
our clients, to help them more seamlessly identify,
We are committed to working with clients, regulators,
manage, and leverage digital opportunities.
vendors, and our colleagues to provide a clear
understanding of the challenges and opportunities
Our primary goal is to be a scalable, secure digital
that the digital economy presents.
institutional custodian — to redefine, in fact, what
it means to be a global custodian. We will achieve
Asset managers want to know whether crypto-
this by deploying the best digital platform, introducing
currency fits their investment profile and, if so, which
differentiating elements along the value chain,
cryptocurrency to select, which benchmarks to
and using our reach to influence the outcomes
follow, and how to address trading, accounting, and
around tokenization and the digitization of assets.
other infrastructure — how to merge the old with the
We can accelerate growth by helping our clients
new. Through our State Street Associates market
bridge the gap between the industry of today and
research team and our new academic partnership
the one of tomorrow.
with Antoinette Schoar at MIT, we are providing
clients with deep insights into developments in the
digital marketplace.
Finally, we are developing and recruiting talent.
We are implementing measures to upskill our
broader organization, making sure employees
understand not only how these new capabilities
support our clients’ success in digital markets,
but also how we are leveraging the underlying
technology enhancements to simplify and strengthen
our own processes — so we work smarter.
60 S T A T E S T R E E T C O R P O R A T I O N
C Y R U S T A R A P O R E V A L A
President and CEO, State Street Global Advisors
2 0 2 1 A N N U A L R E P O R T 61
P O W E R I N G I N V E S T M E N T P E R F O R M A N C E
FOS TERING A
SUS TA IN A BLE FU T URE
State Street Global Advisors is the fourth-largest asset manager (by AUM) in the world,
a pioneer in indexing and quantitative investing, and the creator of many of the world’s first
exchange traded funds (ETFs), with total assets under management of $4.1 trillion as of
December 31, 2021.
Serving some of the largest and most sophisticated pension plan sponsors, endowments
and foundations, sovereign wealth funds, central banks, and financial intermediaries,
we provide investment solutions across the risk-return spectrum, covering all major asset
classes, investment styles, and vehicles.
By considering all material drivers of risk and return, we take a broad yet targeted approach
to improving our clients’ long-term investment performance. We do this by working with
clients to understand their unique needs and objectives, and applying our disciplined,
rigorous, research-based approach to help them meet their wide range of investment goals.
We continued to serve our clients very well, resulting in them
entrusting us with $196 billion of net inflows. We also delivered
for our shareholders, with record levels of pre-tax profits of
$674 million and pre-tax margin of 32%.
62 S T A T E S T R E E T C O R P O R A T I O N
$4.1T
A S S E T S U N D E R
M A N A G E M E N T
$196B
T O T A L N E T I N F L O W S
A C R O S S O U R E T F , C A S H ,
A N D I N S T I T U T I O N A L
B U S I N E S S E S
$107B
I N R E C O R D E T F
N E T I N F L O W S
32%
G L O B A L A D V I S O R S ’
F U L L - Y E A R P R E - T A X
M A R G I N I N 2 0 2 1
During the strong equity bull market run of 2021,
a year which also saw persistently low interest
rates and the return of long-dormant inflation, one of
the most important roles Global Advisors continued
to play for our clients was to help them protect and
grow their capital in a new and more unpredictable
investment landscape.
P E R F O R M A N C E
At Global Advisors, we executed well against our
long-term strategy, which contributed to a number of
records for the business in 2021, including revenues,
assets under management, and ETF inflows.
Importantly, Global Advisors’ full-year pre-tax margin
expanded by more than 6 percentage points in 2021
to a record 32 percent, deepening the value of our
investment management franchise to State Street.
Investment performance was strong across the
spectrum of investment capabilities in 2021,
particularly for our Active Quantitative Equities
strategies, Active Fixed Income strategies, and
Tactical Asset Allocation portfolios. In our index
portfolios, 99 percent of our strategies were within
their stated tracking bands, indicating that client
portfolios achieved their target market exposures
to support their long-term portfolio objectives.
Actively managed portfolios navigated a challenging
year successfully, with nearly two-thirds of our
active portfolios outperforming their benchmarks.
2 0 2 1 A N N U A L R E P O R T 63
We continue to experience significant
demand for our broad-based index
capabilities — as individual capabilities
and as part of multi-asset solutions —
as well as for active strategies
and strategies that integrate ESG
considerations.
L O R I H E I N E L
EVP, Global Chief Investment Officer,
State Street Global Advisors
Assets under management increased 19 percent
E T F I N N O V A T I O N
year-over-year to $4.1 trillion, driven by very strong
equity markets and net flows. We reached total net
Innovation is in our DNA. Indeed, our launch
inflows of $196 billion across our ETF, cash, and
of the industry’s first ETF, SPDR® S&P 500®
institutional businesses, including record ETF net
ETF Trust (SPY), exemplifies our pioneering
inflows of $107 billion.
heritage. Developed in 1993 in partnership with
the American Stock Exchange, and now with more
In the US, the SPDR Blackstone Senior Loan ETF was
than $400 billion in assets, SPY is not just the
the No. 1 active ETF in the industry for net flows. In
oldest and largest ETF, it is also the most liquid,
Europe, our SPDR Bloomberg SASB US Corporate ESG
and trades $31 billion daily on average, at a sub-
UCITS ETF gathered in excess of $5.7 billion in 2021.
penny-wide spread. In 2021, we expanded our
Full-year management fees were more than $2 billion,
suite of fixed income ETFs, including the launch
up nine percent from 2020, reflecting robust new
of our first actively managed municipal bond ETF,
business and higher average equity market levels,
the SPDR Nuveen Municipal Bond ETF (MBND).
more than offsetting money market fee waivers.
64 S T A T E S T R E E T C O R P O R A T I O N
Reflecting our clients’ growing interest in ESG
To meet clients’ evolving needs, in 2021, in addition
investing, we were active in developing six new
to launching several ESG-related ETFs, we
ESG-related index ETFs designed to meet our
introduced other ESG-focused products, including
clients’ ESG and fundamental investment criteria
the Global High Yield Bond ESG Screened Index
in markets worldwide.
strategy, State Street Sustainable Climate Bond
strategies, and the World TPI Climate Transition
We also continued forging strong partnerships with
Index Equity strategy.
third-party managers to bring active ETFs to market,
as demonstrated by our recent launch of the SPDR
We also launched the Opportunity Class, a new
Loomis Sayles Opportunistic Bond ETF (OBND),
money market fund share class to benefit philan-
which provides exposure to a mix of investment-
thropic organizations whose values align with our
grade, high-yield, non-U.S.-dollar-denominated debt,
commitment to racial equity and social justice.
leveraged loans, and securitized issuers.
Recognizing our expertise in integrating ESG factors
into our investment processes, St. James’s Place
S E T T I N G T H E S T A N D A R D
selected us to co-manage their £14 billion Global
F O R E S G P R O G R E S S
Equity Fund, which was adapted to better align with
the firm’s criteria for responsible investing and its
B U I L D I N G P O R T F O L I O R E S I L I E N C E A N D
net-zero commitments. And, as more investors
S U S T A I N A B L E G R O W T H
commit to reaching net zero, we are well positioned
to help them implement meaningful and measurable
Material ESG considerations are integral
transition strategies.
components of long-term risk-adjusted investment
returns and represent another way in which we
can unlock greater value for our clients. For us,
R A I S I N G T H E B A R O N A S S E T S T E W A R D S H I P
these issues are matters of value, not values —
opportunities for companies in our portfolios to
As long-term stewards of our clients’ assets, we are
mitigate downside risk, innovate, and differentiate
committed to fully evaluating the ESG issues that are
themselves from competitors.
material to a company’s ability to generate sustainable
An increasing number of clients recognize the
to use our voice and our vote to drive change when it
importance of responsible growth, fueling demand
comes to all aspects of ESG, and in 2021 we focused
for more sophisticated ESG strategies. In 2021,
on climate, diversity, and governance.
growth. We believe we have a fiduciary responsibility
we won $28 billion in ESG mandates and were
responsible for more than half a trillion dollars in
ESG assets worldwide.
2 0 2 1 A N N U A L R E P O R T 65
$28B
$500B
I N E S G M A N D A T E S W O N
I N E S G A S S E T S U N D E R
M A N A G E M E N T W O R L D W I D E
A virtuous cycle of growth and liquidity strengthened the ETF ecosystem and broadened adoption, resulting in a record-setting year for the global ETF industry. 2021 saw record industry inflows of $1 trillion, with overall industry assets surpassing $10 trillion in AUM. During the year, SPDR experienced record inflows of $107 billion, and saw overall AUM exceed $1 trillion for the first time.RORY TOBINEVP, Global Head, SPDR ETF Business and Head of State Street Global Advisors in EMEA 66 S T A T E S T R E E T C O R P O R A T I O N
2050
Y E A R W E H A V E P L E D G E D
T O R E A C H N E T -
Z E R O G R E E N H O U S E
G A S E M I S S I O N S
948
C O M P A N I E S H A V E A P P O I N T E D
A T L E A S T O N E F E M A L E
As climate change poses one of the most serious
risks to long-term investors, we continued to call
upon our portfolio companies to disclose their
climate risks according to the framework from
the Task Force on Climate-related Financial
Disclosures (TCFD) and report on the progress
of their transition to net-zero emissions and how
that impacts their businesses.
To further raise awareness of this issue, and to
help investors effectively manage the transition
risks, we joined the Net Zero Asset Managers
initiative, a coalition of asset managers committed
to reaching net-zero greenhouse gas emissions
D I R E C T O R T O T H E I R L E A D E R S H I P
by 2050 or sooner. Our pledge aligns with our
T E A M S I N C E 2 0 1 7
deep-rooted commitment to drive long-term value
on behalf of our clients.
5
Y E A R S S I N C E W E
L A U N C H E D O U R F E A R L E S S
G I R L I N I T I A T I V E
In addition to the impact of climate change on
sustainable value creation, we also believe issues
like diversity, board leadership, and human capital
management directly contribute to a company’s value.
Now in its fifth year, our Fearless Girl initiative
continues to build awareness and deliver results in
bringing more female representation onto boards and
into the workplace. Since 2017, of the 1,486 companies
we had identified as having all-male boards, 948 have
since appointed at least one female director as part of
their leadership team. Indeed, in 2021, every company
in the S&P 500 had a least one woman on its board.
2 0 2 1 A N N U A L R E P O R T 67
In the past year, we partnered with Russell
T O W A R D A M O R E S U S T A I N A B L E
Reynolds and the Ford Foundation to produce
A N D I N C L U S I V E F U T U R E
an in-depth study on how corporate boards
approach the oversight of racial and ethnic
Global Advisors will continue to seek to deliver
diversity, equity, and inclusion (DE&I). The study
growth for our investors, and leverage our scale,
provided a view into boardroom discus sions and
expertise, and relationships to further develop
offered a road map for how companies can more
innovative solutions to help clients generate long-
effectively manage and mitigate risks related to
term, risk-adjusted returns.
racial and ethnic DE&I matters. With human capital
management now widely viewed as both a risk
We will continue to reinforce our positions in areas
and opportunity for employers in the wake of the
of competitive strength, including as a world-class
pandemic, we have also published guidance for
ETF franchise; a global ESG leader in institutional
effective disclosures and practices.
and ETF markets; a global leader of index and sys-
We also engaged our portfolio companies on
as select active and multi-asset capabilities; and
corporate governance issues such as board tenure,
an eminent Outsourced Chief Investment Officer
tematic investment capabilities and cash as well
pay, and refreshment. Along with board diversity,
(OCIO) solution provider.
our stewardship is guided by the belief that strong,
capable, and independent boards exercising effective
The roles our people and culture serve in creating
oversight are the foundation upon which long-term
value for our clients and our business cannot
shareholder value is created.
be overstated; hence attracting, cultivating, and
retaining the best talent in the industry will remain
a top priority.
Solving investment challenges for our clients will
remain a catalyst for our continuous innovation.
Most importantly, we will remain focused on
delivering long-term risk-adjusted returns for our
clients and those they serve, while helping them
capitalize on new investment opportunities on
the path toward a more sustainable, diverse, and
inclusive future.
68 S T A T E S T R E E T C O R P O R A T I O N
R I C K L A C A I L L E
EVP, Global Head of ESG
2 0 2 1 A N N U A L R E P O R T 69
A DVA NCING OUR
COMMITMENT TO A MORE
SUS TA IN A BLE FU T URE
While 2021 brought disruption and uncertainty from the ongoing pandemic, we also
saw deeper engagement in ESG matters — in the financial sector and around the world.
Climate change took center stage, boosted by international attention from the United
Nations Climate Change Conference (COP26), while the call for tangible progress in racial
equity and social justice resonated across our stakeholder groups.
During 2021, we focused on the issues that matter most to our stakeholders, such as
inclusion, diversity, equity, and climate change, and offered new ESG investment solutions,
products, and services. We demonstrated our commitment to a more sustainable future
through our asset stewardship engagements with corporate boards, advocating for the
integration of ESG considerations to promote long-term, sustainable returns. Within
our own operations, we continued to carefully manage and measure our environmental
impact, and set aggressive goals and targets to help reduce our energy use, greenhouse
gas emissions, water use, and waste generation.
We approach ESG with a multi-stakeholder mindset to create
value for clients, employees, shareholders, and communities.
In 2021 we offered new ESG investment solutions, helped clients
to analyze and report on ESG attributes, and managed our
corporate activities and internal footprint in an environmentally
and socially responsible way.
70 S T A T E S T R E E T C O R P O R A T I O N
State Street is dedicated to embedding
a supportive culture for all employees
throughout the organization — a culture
that reinforces a sense of care —
for our colleagues, our clients, and the
communities in which we operate.
K A T H Y H O R G A N
EVP, Chief Human Resources and
Corporate Citizenship Officer
And we further ingrained ESG management into
C A R I N G F O R O U R E M P L O Y E E S
our own governance structure, embedding material
A N D O U R C O M M U N I T I E S
issues into our board committee charters and
increasing our accountability at the highest levels
In 2020, we tapped into our solid foundation of
of management. We conducted a materiality
digital tools and platforms to facilitate hybrid and
assessment of our ESG issues to help identify
remote work, and in 2021, we brought employee
and reprioritize the ESG topics that are most
health and well-being into sharper focus, furthering
material to State Street and our stakeholders,
our efforts to build a supportive and inclusive
which will position us for continued progress.
culture through enhanced manager communications,
along with intentional learning, development, and
engagement opportunities.
2 0 2 1 A N N U A L R E P O R T 71
2 0 2 1 S N A P S H O T
E N V I R O N M E N TA L
S O C I A L
G O V E R N A N C E
25%
Reduction toward our goal of
reducing CO2 by 27.5% by 2030
45%
Reduction toward our
revised goal of reducing
H2O use by 25% by 2030
86%
Increase in waste
recycling rate, accomplishing
2025 goal of 80%
100%
Carbon neutrality(1)
100%
2:1
Matching employee gifts to specific
organizations focused on
addressing racial equity issues
99%
Of employees completed
unconscious bias training
in 2021
$25M
Total giving by
State Street Foundation
115,600
“Bravo” program employee
recognition moments recorded
10
Achieved LEED Gold Certification
at our new Boston headquarters
Actions Against Racism
and Inequality
30%
Of our board is female
23%
Of our board is
racially diverse
12 of 13
Of our board are
independent directors
43%
Increase in Tier 1 supplier
diversity spend from 2020
4
Years of inclusion in
the Bloomberg Gender-
Equality Index
58%
(1)For Scope 1 and 2, based on independently reviewed data and resultant
investment in Renewable Energy Credits and carbon offset projects.
Of companies State Street Global Advisors
engaged with that had all-male boards
have added at least one female director
72 S T A T E S T R E E T C O R P O R A T I O N
As part of our 10 Actions Against Racism and
Inequality, we have set goals to improve Black and
Latinx employee representation, sharpen our focus
on Black and Latinx talent development, and expand
on our anti-racism conversations and training.
In June, we launched a 21-day racial equity and
social justice challenge — a collection of short
daily lessons — culminating with a week of
community service opportunities in honor of Race
Unity Day and Juneteenth, which will become a
company holiday in the U.S. beginning in 2022.
We also recognize the role we play in supporting
the economic vitality of our communities. Related to
our 10 Actions, State Street Foundation has taken
steps to incorporate racial equity as a priority in our
corporate philanthropic arm’s grant-making criteria.
We also expanded our supplier diversity program,
enhancing our vendor requirements to ensure that
diversity criteria are incorporated in every request
for proposal and that each bid invite list includes
Part of our challenge and
opportunity is to engage every
segment of our workforce and
diverse companies.
embed inclusion, diversity, and
equity into our everyday decision-
making. In 2021 — the first full
year with our 10 Actions plan —
we made significant progress
toward this, as well as progress
with each of our goals.
P A U L F R A N C I S C O
SVP, Chief Diversity Officer
During the year, we established a team dedicated
to reviewing and evolving our Flex Work policies,
processes, and governance in alignment with our
ongoing workplace of the future efforts. Launching
in the first half of 2022, this enhanced approach
to flexibility will support our company-wide strategy
for transforming the way we work and further our
objectives as a high-performing organization.
L E A D
E N G A G E
G O V E R N
2 0 2 1 A N N U A L R E P O R T 73
1 0 A C T I O N S A G A I N S T
R A C I S M A N D I N E Q U A L I T Y
1
2
Triple our Black and Latinx* leadership (senior vice presidents+) and double our percentage
of Black and Latinx* populations over the next three years. Extend requirement to interview a
diverse slate of candidates for positions at all levels.
Examine all of State Street’s development and advancement programs and processes to
improve the mobility and development of Black and Latinx professionals.
3
Enlist our entire workforce in learning opportunities and conversations around
anti-racism and equity. Make these approaches/programs available to our clients.
4
Systematically review governance models within key management
committees to ensure inclusion and diverse representation.
Increase our spend with diverse suppliers over the next three years.
5
Hold ourselves accountable for strengthening Black- and Latinx-
owned businesses.
6
Work with our board to add Black and Latinx directors within
18 months and to expand its diversity efforts.
Partner with State Street Global Advisors’ Asset Stewardship and
7
determine what State Street can learn from others to develop best
practices and evolve to a best-in-class organization in combatting
racism and attracting, motivating, and retaining Black and Latinx talent.
8
Lead an effort with the asset management industry to attract
and advance more Black and Latinx people into our profession.
Establish combatting racism as a clear priority pillar
9
alongside education and workforce development, and
reprioritize State Street Foundation spending accordingly.
10
Leverage Juneteenth as a day of reflection to create
awareness and establish a State Street-wide day of
service focused on better understanding racism and
giving back to our communities.
74 S T A T E S T R E E T C O R P O R A T I O N
2 0 2 1 A N N U A L R E P O R T 75
A C C E L E R A T I N G G R O W T H
FIN A NCI A L RE V IE W
STATE STREET CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
December 31, 2021
TABLE OF CONTENTS
Forward-Looking Statements
Risk Factors Summary
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Supplemental Item Information about our Executive Officers
PART II
Item 5
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 6
Item 7
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
General
Overview of Financial Results
Consolidated Results of Operations
Total Revenue
Net Interest Income
Other Income
Provision for Credit Losses
Expenses
Acquisition Costs
Restructuring and Repositioning Charges
Income Tax Expense
Line of Business Information
Investment Servicing
Investment Management
Financial Condition
Investment Securities
Loans
Cross-Border Outstandings
Risk Management
Credit Risk Management
Liquidity Risk Management
Operational Risk Management
Information Technology Risk Management
Market Risk Management
Model Risk Management
Strategic Risk Management
Capital
Off-Balance Sheet Arrangements
Significant Accounting Estimates
Recent Accounting Developments
Item 7A
Item 8
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Statement of Income
Page
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6
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State Street Corporation | 2
Consolidated Statement of Comprehensive Income
Consolidated Statement of Condition
Consolidated Statement of Changes in Shareholders' Equity
Consolidated Statement of Cash Flows
Note 1. Summary of Significant Accounting Policies
Note 2. Fair Value
Note 3. Investment Securities
Note 4. Loans and Allowance for Credit Losses
Note 5. Goodwill and Other Intangible Assets
Note 6. Other Assets
Note 7. Deposits
Note 8. Short-Term Borrowings
Note 9. Long-Term Debt
Note 10. Derivative Financial Instruments
Note 11. Offsetting Arrangements
Note 12. Commitments and Guarantees
Note 13. Contingencies
Note 14. Variable Interest Entities
Note 15. Shareholders' Equity
Note 16. Regulatory Capital
Note 17. Net Interest Income
Note 18. Equity-Based Compensation
Note 19. Employee Benefits
Note 20. Occupancy Expense and Information Systems and Communications
Expense
Note 21. Expenses
Note 22. Income Taxes
Note 23. Earnings Per Common Share
Note 24. Line of Business Information
Note 25. Revenue From Contracts with customers
Note 26. Non-U.S. Activities
Note 27. Parent Company Financial Statements
Note 28. Subsequent Events
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
EXHIBIT INDEX
SIGNATURES
Item 9
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
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State Street Corporation | 3
Forward-Looking Statements
This Form 10-K, as well as other reports and
proxy materials submitted by us under the Securities
Exchange Act of 1934, registration statements filed
by us under the Securities Act of 1933, our annual
report to shareholders and other public statements
we may make, may contain statements (including
statements in our Management's Discussion and
Analysis included in such reports, as applicable) that
are considered “forward-looking statements” within
the meaning of U.S. securities laws, including
statements about our goals and expectations
regarding our business,
financial and capital
condition, results of operations, strategies, cost
savings and transformation initiatives, investment
portfolio performance, dividend and stock purchase
programs, acquisitions (including, without limitation,
our planned acquisition of Brown Brothers
Harriman's Investor Services business), outcomes of
legal proceedings, market growth, joint ventures and
divestitures, client growth and new technologies,
services and opportunities, as well as industry,
governmental, regulatory, economic and market
trends, initiatives and developments, the business
environment and other matters that do not relate
strictly to historical facts.
Terminology such as “plan,” “expect,” “intend,”
“objective,” “forecast,” “outlook,” “believe,” “priority,”
“anticipate,” “estimate,” “seek,” “may,” “will,” “trend,”
“target,” “strategy” and “goal,” or similar statements
or variations of such terms, are intended to identify
forward-looking statements, although not all forward-
looking statements contain such terms.
to
Forward-looking statements are subject
various risks and uncertainties, which change over
time, are based on management's expectations and
assumptions at the time the statements are made and
are not guarantees of future results. Management's
expectations and assumptions, and the continued
validity of the forward-looking statements, are subject
to change due to a broad range of factors affecting
the U.S. and global economies,
regulatory
environment and the equity, debt, currency and other
financial markets, as well as factors specific to State
Street and its subsidiaries, including State Street
Bank. Factors that could cause changes in the
expectations or assumptions on which
forward-
looking statements are based cannot be foreseen
with certainty and include the factors described under
the headings "Risk Factors Summary" and "Risk
Factors" and elsewhere in this Form 10-K, including
under "Management's Discussion and Analysis."
Actual outcomes and
results may differ
materially from what is expressed in our forward-
looking statements and from our historical financial
results due to the factors discussed in this section
and elsewhere in this Form 10-K or disclosed in our
other SEC filings. Forward-looking statements in this
Form 10-K should not be relied on as representing
our expectations or assumptions as of any time
subsequent to the time this Form 10-K is filed with the
SEC. We undertake no obligation to revise our
forward-looking statements after the time they are
made. The factors discussed herein are not intended
to be a complete statement of all risks and
uncertainties that may affect our businesses. We
cannot anticipate all developments
that may
adversely affect our business or operations or our
consolidated results of operations, financial condition
or cash flows.
Forward-looking statements should not be
viewed as predictions and should not be the primary
basis on which investors evaluate State Street. Any
investor in State Street should consider all risks and
uncertainties disclosed in our SEC filings, including
our filings under the Securities Exchange Act of 1934,
in particular our annual reports on Form 10-K, our
quarterly reports on Form 10-Q and our current
reports on Form 8-K, or registration statements filed
under the Securities Act of 1933, all of which are
accessible on the SEC's website at www.sec.gov or
on the “Investor Relations” section of our corporate
website at www.statestreet.com.
Risk Factors Summary
The following is a summary of the material risks
we are exposed to in the course of our business
activities. The below summary does not contain all of
the information that may be important to you, and you
should read the below summary together with the
more detailed discussion of risks set forth under the
heading "Risk Factors," as well as elsewhere in this
Form 10-K under
"Management's
Discussion and Analysis."
the heading
Strategic Risks
•
•
The consummation of our planned acquisition
of the BBH Investor Services business is
subject to the receipt of regulatory approvals
the satisfaction of other closing
and
conditions, the failure or delay of which may
prevent or delay the consummation of the
acquisition;
Even if we successfully consummate our
planned acquisition of the BBH Investor
Services business, we may fail to realize
some or all of the anticipated benefits of the
transaction or the benefits may take longer to
realize than expected;
• We are subject to intense competition, which
could negatively affect our profitability;
• We are subject to significant pricing pressure
and variability in our financial results and our
AUC/A and AUM;
• Our development and completion of new
products and services, including State Street
the
Digital or State Street Alpha, and
State Street Corporation | 4
increased
regulatory and
enhancement of our infrastructure required to
meet
client
expectations for resiliency and the systems
and process re-engineering necessary to
achieve improved productivity and reduced
operating
involve costs and
dependencies and expose us to increased
risk;
risk, may
• Our business may be negatively affected by
to update and maintain our
failure
our
technology infrastructure;
•
•
•
to
The COVID-19 pandemic continues
exacerbate certain risks and uncertainties for
our business;
strategic
alliances,
Acquisitions,
joint
ventures and divestitures, and the integration,
retention and development of the benefits of
our acquisitions, pose risks for our business;
and
Competition for qualified members of our
workforce is intense, and we may not be able
to attract and retain the highly skilled people
we need to support our business.
Financial Market Risks
• We
could be adversely affected by
geopolitical, economic and market conditions;
• We have significant International operations,
and disruptions
in European and Asian
economies could have an adverse effect on
our consolidated results of operations or
financial condition;
• Our
securities
investment
portfolio,
consolidated
and
consolidated results of operations could be
adversely affected by changes in the financial
markets;
condition
financial
• Our business activities expose us to interest
rate risk;
to
• We assume significant credit
counterparties, who may
have
substantial financial dependencies with other
financial
these credit
exposures and concentrations could expose
us to financial loss;
institutions, and
also
risk
• Our fee revenue represents a significant
portion of our consolidated revenue and is
subject to decline based on, among other
factors, market and currency declines,
investment activities of our clients and their
business mix;
•
If we are unable to effectively manage our
capital and liquidity, our consolidated financial
condition, capital ratios, results of operations
and business prospects could be adversely
affected;
• We may need to raise additional capital or
debt in the future, which may not be available
to us or may only be available on unfavorable
terms; and
•
If we experience a downgrade in our credit
ratings, or an actual or perceived reduction in
our financial strength, our borrowing and
capital costs, liquidity and reputation could be
adversely affected.
Compliance and Regulatory Risks
• Our business and capital-related activities,
including common share repurchases, may
be adversely affected by capital and liquidity
standards required as a result of capital
stress testing;
• We face extensive and changing government
regulation in the jurisdictions in which we
operate, which may increase our costs and
compliance risks;
• We are subject
to enhanced external
oversight as a result of the resolution of prior
regulatory or governmental matters;
• Our businesses may be adversely affected by
government enforcement and litigation;
•
Any misappropriation of
the confidential
information we possess could have an
adverse impact on our business and could
subject us to regulatory actions, litigation and
other adverse effects;
• Our calculations of risk exposures, total RWA
and capital ratios depend on data inputs,
formulae, models,
and
assumptions that are subject to change,
which could materially
risk
exposures, our total RWA and our capital
ratios from period to period;
impact our
correlations
•
•
•
Changes
in accounting standards may
adversely affect our consolidated financial
statements;
Changes in tax laws, rules or regulations,
challenges to our tax positions and changes
in the composition of our pre-tax earnings
may increase our effective tax rate; and
The transition away from LIBOR may result
in additional costs and
risk
exposure.
increased
Operational Risks
• Our control environment may be inadequate,
fail or be circumvented, and operational risks
could adversely affect our consolidated
results of operations;
•
Cost shifting to non-U.S. jurisdictions and
outsourcing may expose us to increased
risk and
risk, geopolitical
operational
State Street Corporation | 5
reputational harm and may not result in
expected cost savings;
Attacks or unauthorized access
to our
information technology systems or facilities,
or those of the third parties with which we do
their
business, or disruptions
continuous operations, could
in
significant costs, reputational damage and
impacts on our business activities;
to our or
result
Long-term contracts expose us to pricing and
performance risk;
•
•
• Our businesses may be negatively affected
by adverse publicity or other reputational
harm;
• We may not be able to protect our intellectual
property;
•
The quantitative models we use to manage
our business may contain errors that could
result in material harm;
• Our reputation and business prospects may
be damaged if our clients incur substantial
losses or are restricted in redeeming their
interests in investment pools that we sponsor
or manage;
•
The
impacts of climate change, and
regulatory responses to such risks, could
adversely affect us; and
• We may
incur
losses as a
result of
unforeseen events including terrorist attacks,
natural disasters, the emergence of a new
pandemic or acts of embezzlement.
PART I
ITEM 1. BUSINESS
GENERAL
the
laws of
in 1969 under
State Street Corporation, referred to as the
Parent Company, is a financial holding company
organized
the
Commonwealth of Massachusetts. Our executive
offices are located at One Lincoln Street, Boston,
Massachusetts 02111 (telephone (617) 786-3000).
For purposes of this Form 10-K, unless the context
requires otherwise, references to “State Street,” “we,”
“us,” “our” or similar
terms mean State Street
Corporation and its subsidiaries on a consolidated
basis. The Parent Company is a source of financial
and managerial strength to our subsidiaries. Through
our subsidiaries,
including our principal banking
subsidiary, State Street Bank and Trust Company,
referred to as State Street Bank, we provide a broad
to
range of
institutional investors worldwide, with $43.68 trillion of
AUC/A and $4.14 trillion of AUM as of December 31,
2021.
financial products and services
As of December 31, 2021, we had consolidated
total assets of $314.62 billion, consolidated total
equity
total
deposits of $255.04 billion, consolidated
shareholders'
and
billion
of
approximately 39,000 employees. We operate in
than 100 geographic markets worldwide,
more
including the U.S., Canada, Latin America, Europe,
the Middle East and Asia.
$27.36
On
the “Investor Relations” section of our
corporate website at www.statestreet.com, we make
available, free of charge, all reports we electronically
file with, or furnish to, the SEC including our Annual
Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as
any amendments to those reports, as soon as
reasonably practicable after those documents have
been filed with, or furnished to, the SEC. These
documents are also accessible on the SEC’s website
at www.sec.gov. We have included the website
addresses of State Street and the SEC in this report
as inactive textual references only. Information on
those websites (or any other) is not incorporated by
reference in this Form 10-K.
We have Corporate Governance Guidelines, as
well as written charters for the Examining and Audit
Committee, the Executive Committee, the Human
Resources Committee, the Nominating and Corporate
Governance Committee, the Risk Committee and the
Technology and Operations Committee of our Board
of Directors, or Board, and a Code of Ethics for senior
financial officers, a Standard of Conduct for Directors
and a Standard of Conduct for our employees. Each
of these documents is posted on the "Investor
Relations" section of our website under "Corporate
Governance."
regulatory standards,
We provide additional disclosures required by
applicable bank
including
supplemental qualitative and quantitative information
with respect to regulatory capital (including market
risk associated with our trading activities) and the
liquidity coverage ratio, summary results of State
Street-run stress tests which we conduct under the
Dodd-Frank Act and resolution plan disclosures
required under the Dodd-Frank Act. These additional
disclosures are available on the “Investor Relations”
section of our website under "Filings and Reports."
We use acronyms and other defined terms for
certain business terms and abbreviations, as defined
on the acronyms list and glossary under Item 8 in this
Form 10-K.
BUSINESS DESCRIPTION
Overview
We conduct our business primarily through State
Street Bank, which traces its beginnings to the
founding of the Union Bank in 1792. State Street
Bank's current charter was authorized by a special
Act of the Massachusetts Legislature in 1891, and its
present name was adopted in 1960. State Street
Bank operates as a specialized bank, referred to as a
State Street Corporation | 6
trust or custody bank, that services and manages
assets on behalf of its institutional clients.
funds and other
Our clients include mutual funds, collective
investment pools,
investment
corporate and public retirement plans, insurance
companies, foundations, endowments and investment
managers.
LINES OF BUSINESS
We have two lines of business: Investment
Servicing and Investment Management.
Investment Servicing
Our
to execute
investor clients
Investment Servicing
line of business
performs core custody and related value-added
functions, such as providing institutional investors
with clearing, settlement and payment services. Our
large
financial services and products allow our
institutional
financial
transactions on a daily basis in markets across the
investors cannot
institutional
globe. As most
economically or efficiently build their own technology
and operational processes necessary to facilitate their
global securities settlement needs, our role as a
global trust and custody bank is generally to aid our
clients to efficiently perform services associated with
the clearing, settlement and execution of securities
transactions and related payments.
Our
Investment Servicing
line of business,
through State Street Institutional Services, State
Street Global Markets, State Street Digital and CRD,
provides services for institutional clients, including
mutual funds, collective investment funds and other
investment pools, corporate and public retirement
plans, insurance companies, investment managers,
foundations and endowments worldwide. Products
include: custody; product accounting; daily pricing
and administration; master trust and master custody;
depotbank services (a fund oversight role created by
non-U.S.
cash
management; foreign exchange, brokerage and other
trading services; securities finance and enhanced
custody products; deposit and short-term investment
financing;
facilities;
investment
lease
manager and alternative
investment manager
risk and
operations outsourcing; performance,
compliance analytics; and financial data management
to support institutional investors.
record-keeping;
regulation);
loans and
Included within our Investment Servicing line of
business is CRD, which we acquired in 2018. The
Charles River Investment Management System is a
technology offering which is designed to automate
and simplify the institutional investment process
across asset classes, from portfolio management and
risk analytics
trading and post-trade
settlement, with integrated compliance and managed
data throughout. With the acquisition of CRD, we took
through
the first step in building our front-to-back platform,
State Street Alpha. Today our State Street Alpha
platform combines portfolio management, trading and
tools, and
execution, analytics and compliance
advanced data aggregation and integration with other
industry platforms and providers. In 2021, we further
expanded our technology offering with the acquisition
of Mercatus, Inc., enabling the launch of Alpha for
Private Markets.
In 2021, we established State Street Digital to
focus on the development of digital assets and
technologies, including crypto, central bank digital
currency, blockchain and tokenization, including the
evolution of a new integrated business and digital
operating model designed to support our clients'
digital investment cycle.
We provide some or all of the Investment
Servicing integrated products and services to clients
in the U.S. and in many other markets, including,
among others, Australia, Brazil, Canada, Cayman
Islands, France, Germany, Hong Kong, Ireland, Italy,
Japan, Luxembourg, South Korea and the U.K. As of
December 31, 2021, we serviced AUC/A of
approximately $32.43
the Americas,
approximately $8.60 trillion in Europe and the Middle
East and approximately $2.65 trillion in the Asia-
Pacific region1.
trillion
in
Investment Management
for our clients. Our
capabilities and alternative
Our Investment Management line of business,
through State Street Global Advisors, provides a
broad range of investment management strategies
investment
and products
management strategies and products span the risk/
reward spectrum for equity, fixed income and cash
assets, including core and enhanced indexing, multi-
asset strategies, active quantitative and fundamental
investment
active
strategies. Our AUM is currently primarily weighted to
indexed strategies. In addition, we provide a breadth
of services and solutions, including environmental,
social and governance (ESG) investing, defined
benefit and defined contribution and Global Fiduciary
Solutions (formerly Outsourced Chief
Investment
Officer). State Street Global Advisors is also a
provider of ETFs, including the SPDR® ETF brand.
As of December 31, 2021, State Street Global
Advisors had AUM of approximately $4.14 trillion.
included
Additional
is provided under
information about our
lines of
“Line of Business
business
Information”
our Management's
Discussion and Analysis, and in Note 24 to the
consolidated financial statements in this Form 10-K.
Additional information about our non-U.S. activities is
included in Note 26 to the consolidated financial
statements in this Form 10-K.
in
1 Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
State Street Corporation | 7
COMPETITION
We operate in a highly competitive environment
in all areas of our business globally. Our competitors
include a broad range of financial institutions and
servicing companies, including other custodial banks,
deposit-taking institutions, investment management
firms, insurance companies, mutual funds, broker/
investment banks, benefits consultants,
dealers,
investment analytics businesses, business service
and software companies, technology companies, data
providers and information services firms. As our
businesses grow and markets evolve, we may
encounter increasing and new forms of competition
around the world.
in
We believe
the markets
that many key
factors drive
for our business.
competition
Technological expertise, economies of scale, required
levels of capital, pricing, quality and scope of
services, and sales and marketing are critical to our
line of business. For our
Investment Servicing
Investment Management
line of business, key
competitive factors include expertise, experience,
availability of related service offerings, quality of
service, price, efficiency of our products and services,
and performance.
Our competitive success may depend on our
ability to develop and market new and innovative
services, to adopt or develop new technologies, to
implement efficiencies into our operational processes,
to bring new services to market in a timely fashion at
competitive prices, to integrate existing and future
products and services effectively into State Street
Alpha, to continue to expand our relationships with
existing clients, and to attract new clients.
We are a G-SIB and are subject to extensive
to our
regulation and supervision with respect
operations and activities. Not all of our competitors
have similarly been designated as systemically
important nor are all of them subject to the same
degree of regulation as a bank or financial holding
company, and therefore some of our competitors may
not be subject to the same limitations, requirements
and standards with respect to their operations and
activities. Most other financial institutions designated
as systemically important have substantially greater
financial resources and a broader base of operations
than we do and are, consequently, in a better
competitive position to manage and bear the costs of
requirement. See
this
"Supervision and Regulation" in this Item for more
information.
regulatory
enhanced
HUMAN RESOURCES
Our employees are a core asset and a key
driver of our long-term performance. Our employees
drive
innovate
better ways to serve our clients and act as custodians
to empower our
of our
the company’s value proposition,
reputation. We seek
employees by providing development and learning
opportunities to help each person reach their full
potential, by promoting an inclusive and diverse
organizational
workplace
effectiveness. Our human capital strategy
is a
meaningful driver of our overall enterprise strategy.
improving
and
by
In 2021, the COVID-19 pandemic continued to
have a significant impact on how we managed our
workforce. We enhanced and expanded flexible work
opportunities, embracing a hybrid model of working,
while also giving nearly all employees the opportunity
to return to the office. We also maintained enhanced
employee benefits put in place in 2020, which vary
based on location, with specific, pandemic-related
offerings including providing support for COVID-19-
related medical costs, additional time off, backup
childcare options and reimbursement for home office
equipment. Due to the net impact of hiring and
attrition levels, both of which we monitor closely, our
workforce at the end of 2021 was down 2% compared
to 2020 at approximately 39,000 employees, 69% of
whom are located outside the U.S.
The Board of Directors’ Human Resources
Committee oversees our human capital management
strategy, and receives regular updates on matters
such as recruitment, retention and inclusion and
diversity initiatives. Our management-level Enterprise
Talent Management Committee, which consists of
senior executive leaders, provides leadership, input
and advice on our global talent-related initiatives to
support achievement of our strategic priority to
to become a higher-performing
continually seek
organization and a destination for talent.
Workforce Engagement and Culture
Our culture and values help to define us as a
company. Employees are expected to focus on the
following culture traits as they carry out their work:
•
•
•
•
•
Choose to Own It;
Break Through Silos;
Deliver Results with Integrity and Speed;
Do Better Every Day; and
for Our Colleagues, Clients and
Care
Community.
traits and
We aim to promote strong levels of employee
commitment and connection to the company by
highlighting our shared culture
the
behaviors that drive our business strategy, such as
our annual Risk Excellence Awards, which recognize
and reward employees who demonstrate exemplary
risk management performance. We believe that an
inclusive and diverse culture where employees feel
valued and engaged will make State Street a more
desirable place to work, help us to attract key talent
and retain employees as they grow in their careers
and foster an environment that enhances each
individual’s productivity and professional satisfaction.
State Street Corporation | 8
to
We use our compensation program
incentivize our executives to role-model these shared
culture traits. In determining executive compensation,
first measure enterprise-level performance,
we
including
diversity-related
performance.
then evaluate executives’
performance against individual objectives derived
from our corporate goals, including their performance
advancing and role-modeling the critical leadership
behaviors and culture traits that drive our business
strategy.
leadership-
We
and
The integrity and ethical decision-making of our
employees is also paramount for our culture. We
encourage employees to speak up if they see
behavior that is inconsistent with our Standard of
regularly
Conduct, culture or values, and we
communicate the multiple channels provided for them
to do so, including our Speak Up Line, Conduct Risk
Management team and other avenues. We want our
employees to know their opinions are valued, to feel
comfortable asking questions and raising concerns, to
feel truly appreciated for acting responsibly by voicing
concerns, and to have no fear of retaliation. Our
approach is to promote ethical conduct by treating
minor policy breaches as learning opportunities, and
major policy breaches and misconduct promptly,
professionally and seriously.
Attracting and Retaining Top Talent
in
of
the
turnover
rates and
competitiveness
Attracting and retaining top talent is critical to
our business strategy, especially
in particularly
competitive labor markets, such as the environment
in 2021. As such, we carefully monitor our hiring,
implement
promotion and
programs to help retain our best employees. For
example, we saw an opportunity to correct an
imbalance
our
compensation program by accelerating expenses
incentive
associated with certain deferred cash
awards in the fourth quarter of 2021. This change will
allow us to realign the mix of immediate versus
deferred cash in our incentive compensation awards
in future periods, which will make our pay practices
more competitive and enable us to better attract
talent in an increasingly tight talent market. Our mix of
deferred equity
remains unchanged. We also
continue to see success redeploying employees via
the internal talent marketplace that we launched
during 2020. The talent marketplace is an innovative
way for our employees to access new roles, skills and
opportunities, and for managers to recruit internal
talent. By broadening every employee’s access to
roles and by showing managers the full breadth of
talent at State Street, our goal is to provide better
pathways to long-term career success at State Street
for all employees.
We regularly monitor our compensation program
to maintain competitiveness. Our overall aim with
respect to compensation is to reward and motivate
high-performing
provide
incentive opportunities, encouraging
competitive
employees
and
to
typically
comprises
employees to learn and grow in their careers.
Compensation
fixed
compensation, which reflects individual skills and
abilities relative to role requirements, and variable
compensation, which
total
link
to
organizational,
compensation
business
individual
performance. Our compensation program is intended
to drive our business strategy by differentiating pay
based on performance against annual objectives.
opportunities
risk management and
is designed
line,
to
and
Professional
to align our
employee
development
learning are also key elements of our talent retention
strategy. We seek
learning and
development programs with our corporate strategy by
offering skills enhancement addressing the rapidly
changing, technology-centric demands of the financial
services
industry. We also provide professional
development opportunities and new roles for key
to deepen our
talent, which we believe helps
employees’ skillsets and provides
them with a
broader perspective on the company.
Inclusion, Diversity and Equity
Inclusion, diversity and equity have long been a
focus for our company and we are working to
accelerate progress via our “10 Actions Against
Racism and Inequality,” which we announced in July
2020. These concrete actions, including specific
goals to increase diverse representation among our
senior leaders and our Board and increasing our
spend with diverse suppliers, are intended to address
racial and social injustice and inequity by improving
inclusion and diversity within our own company and
industry and
advocating
communities. We believe that our strength comes
from our diversity, including with respect to race,
gender, LGBTQ+ identity, disability, and veteran
status, and that attracting and hiring the best person
for the job is core to our ability to be an essential
partner to our clients. We track our progress against
the objectives outlined in the “10 Actions” and publicly
share our progress on our website to help hold
ourselves accountable.
the same
in our
for
At the end of 2021, our global workforce was
55% male and 45% female, and women represented
32% of our leadership (defined as senior vice
president level and above). In the U.S., 34% of our
workforce self-identified as employees of color. We
also publish our EEO-1 demographic data on our
website.
Organizational Effectiveness
Driving improvements in both individual and
organizational productivity is a key ongoing focus of
our overall human capital management strategy. We
seek to enhance the value each employee is able to
contribute by investing in new technologies, designing
more effective organizational structures, improving
processes and operating models, optimizing our
global footprint, and aligning incentives to outcomes.
State Street Corporation | 9
We believe that improving the productivity of our
workforce will yield more engaged and higher
performing employees and optimize our ability to
service our clients, grow revenues and improve
operating margin performance.
Community Engagement
We are proud of our impact on communities
around the world through employee volunteering and
the financial support that the State Street Foundation
provides to non-profit organizations. We also manage
a charitable board matching program, providing
training and support for State Street employees to
serve as members of boards of directors of charitable
organizations, and a matching gifts program,
recognizing
the contributions of employees by
monetizing volunteer time, matching donations and
supporting employee fundraising efforts. Our skills-
based volunteer program gives employees
the
opportunity to strengthen their communities while also
developing their professional skills in alignment with
our overall human capital management strategy. We
recognize that being a good corporate citizen drives
employee engagement, enhances our reputation with
clients and potential employees, improves brand
recognition and builds public trust.
SUPERVISION AND REGULATION
We are registered with the Federal Reserve as a
bank holding company pursuant to the Bank Holding
Company Act of 1956. The Bank Holding Company
Act generally limits the activities in which bank
holding companies and their non-banking subsidiaries
may engage to managing or controlling banks and to
a range of activities that are considered to be closely
related to banking. Bank holding companies that have
elected to be treated as financial holding companies,
such as the Parent Company, may engage in a
broader range of activities considered to be "financial
in nature." The regulatory limits on our activities also
apply to non-banking entities that we are deemed to
“control” for purposes of the Bank Holding Company
Act, which may include companies of which we own
or control 5% or more of a class of voting shares. The
Federal Reserve may order a bank holding company
to terminate any activity, or its ownership or control of
a non-banking subsidiary, if the Federal Reserve finds
that the activity, ownership or control constitutes a
serious risk to the financial safety, soundness or
stability of a banking subsidiary or is inconsistent with
sound banking principles or statutory purposes. The
Bank Holding Company Act also requires a bank
holding company to obtain prior approval of the
Federal Reserve before it acquires substantially all
the assets of any bank, or ownership or control of
more than 5% of the voting shares of any bank.
The Parent Company has elected to be treated
as a financial holding company and, as such, may
engage in a broader range of non-banking activities
than permitted for bank holding companies and their
subsidiaries that have not elected to become financial
holding companies. Financial holding companies may
engage directly or indirectly, either de novo or by
acquisition, in activities that are defined by the
Federal Reserve to be financial in nature, provided
that the financial holding company gives the Federal
Reserve after-the-fact notice of the new activities.
Activities defined to be financial in nature include, but
are not limited to: providing financial or investment
advice; underwriting; dealing in or making markets in
securities; making merchant banking investments,
subject to significant limitations; and any activities
previously found by the Federal Reserve to be closely
related to banking. In order to maintain our status as
a financial holding company, we and each of our U.S.
depository institution subsidiaries are expected to be
well capitalized and well managed, as defined in
applicable regulations and determined in part by the
results of regulatory examinations, and must comply
with Community Reinvestment Act obligations. Failure
to maintain these standards may result in restrictions
on our activities and may ultimately permit the
Federal Reserve to take enforcement actions against
us and restrict our ability to engage in activities
defined to be financial in nature. Currently, under the
Bank Holding Company Act, we may not be able to
engage in new activities or acquire shares or control
of other businesses.
is subject has
In response to the 2008 financial crisis, as well
as other factors, such as technological and market
changes, both the scope of the laws and regulations
and the intensity of the supervision to which our
business
increased. Regulatory
enforcement and fines have also increased across
the banking and financial services sector. Many of
these changes have occurred as a result of the Dodd-
Frank Act and its implementing regulations, most of
which are now in place. Subsequently, in May 2018,
the Economic Growth, Regulatory Relief and
Consumer Protection Act (EGRRCPA) was enacted.
The EGRRCPA’s revisions to the U.S. financial
regulatory framework have altered certain laws and
regulations applicable to us and other major financial
services firms. Under the current administration,
changes in key personnel at the agencies that
regulate such banking organizations, including the
federal banking agencies, may result in increased
prudential and conduct oversight, more extensive
regulatory requirements, changing interpretations of
existing rules and guidelines, and potentially more
stringent enforcement and more severe penalties.
Irrespective of any regulatory change, we expect that
to extensive
our business will
regulation and supervision.
remain subject
In addition, increased regulatory requirements
and initiatives have been and are being implemented
internationally with respect to financial institutions,
State Street Corporation | 10
in
including the implementation of the Basel III rule
(refer to “Regulatory Capital Adequacy and Liquidity
Standards”
this “Supervision and Regulation”
section and under "Capital" in “Financial Condition” in
our Management's Discussion and Analysis in this
Form 10-K for a discussion of Basel III), the European
Commission’s Investment Firm Review and Central
Securities Depositories Regulation, as well as
proposals for amending the Alternative Investment
Fund Managers Directive and under the Capital
Markets Union Action Plan.
(including
organizations
Many aspects of our business are subject to
regulation by other U.S.
federal and state
governmental and regulatory agencies and self-
regulatory
securities
exchanges), and by non-U.S. governmental and
regulatory agencies and self-regulatory organizations.
Some aspects of our public disclosure, corporate
governance principles and internal control systems
are subject to the Sarbanes-Oxley Act of 2002 (SOX),
the Dodd-Frank Act and regulations and rules of the
SEC and the New York Stock Exchange.
Internal Ratings-Based Approach (AIRB) used for the
calculation of RWA related to credit risk and the
Advanced Measurement Approach (AMA) used for
the calculation of RWA related to operational risk.
the
rule
final
approach
standardized
that, among other
the exposure amount
In November 2019, the Federal Reserve and the
other U.S. federal banking agencies (U.S. Agencies)
issued a
things,
for
implements
counterparty credit risk (SA-CCR), a methodology for
calculating
for derivative
contracts. Under the final rule, beginning on January
1, 2022, we have the option to use the SA-CCR or
the Internal Model Methodology (IMM) to measure the
exposure amount of our cleared and uncleared
derivative
advanced
approaches calculation. We have elected to use the
SA-CCR for purposes of our advanced approaches
capital calculations. Beginning on January 1, 2022,
we are required to determine the amount of these
exposures using the SA-CCR under our standardized
approach capital calculation.
Minimum Risk-Based Capital Requirements
transactions
under
our
Regulatory Capital Adequacy and Liquidity
Standards
Among other things, the Basel III rule (as
amended) requires:
Basel III Rule
We, as an advanced approaches banking
organization, are subject to the Basel III framework in
the U.S. The provisions of the Basel III rule related to
minimum capital requirements, regulatory capital
buffers and deductions and adjustments to regulatory
capital were fully implemented as of January 1, 2019.
We are also subject to the market risk capital rule
jointly issued by U.S. banking regulators to implement
the changes to the market risk capital framework in
the U.S.
in
As required by the Dodd-Frank Act, we, as an
advanced approaches banking organization, are
subject to a "capital floor," also referred to as the
Collins Amendment,
the assessment of our
regulatory capital adequacy, including the capital
conservation buffer and countercyclical capital buffer
described below in this "Supervision and Regulation"
section. Our risk-based capital ratios for regulatory
assessment purposes are the lower of each ratio
calculated under the standardized approach and the
advanced approaches.
Risk Weighted Assets
The Basel III rule provides two frameworks for
the calculation of RWA
for purposes of bank
regulatory compliance: the “standardized” approach
and the “advanced” approaches, which are applicable
to advanced approaches banking organizations, like
us.
The
standardized
prescribes
standardized risk weights for certain on- and off-
balance sheet exposures in the calculation of RWA.
The advanced approaches consist of the Advanced
approach
•
•
•
•
a minimum CET1 risk-based capital ratio of
4.5% and a minimum SLR of 3%
for
advanced approaches banking organizations;
a minimum Tier 1 risk-based capital ratio of
6%;
a minimum total capital ratio of 8%; and
the stress capital and countercyclical capital
buffers, referenced below, as well as a G-SIB
surcharge and the enhanced SLR (which acts
as an SLR buffer) described in "Capital" in
"Financial Condition" in our Management's
Discussion and Analysis in this Form 10-K.
Under the Basel III rule, our total regulatory
capital is composed of three tiers: CET1 capital, Tier
1 capital (which includes CET1 capital), and Tier 2
capital. The total of Tier 1 and Tier 2 capital, adjusted
as applicable, is referred to as total regulatory capital.
CET1 capital
is composed of core capital
elements, such as qualifying common shareholders'
equity and related surplus plus retained earnings and
the cumulative effect of foreign currency translation
plus net unrealized gains (losses) on debt and equity
securities classified as AFS, less treasury stock and
less goodwill and other intangible assets, net of
related deferred
is
composed of CET1 capital plus additional Tier 1
capital instruments which, for us, includes four series
of preferred equity outstanding as of December 31,
includes certain eligible
2021. Tier 2 capital
subordinated
instruments. Total
regulatory capital consists of Tier 1 capital and Tier 2
capital.
liabilities. Tier 1 capital
long-term debt
tax
State Street Corporation | 11
Certain other items, if applicable, must be
deducted from Tier 1 and Tier 2 capital, including
certain investments in the capital of unconsolidated
banking, financial and insurance entities and the
amount of expected credit losses that exceeds
recorded allowances for loan and other credit losses.
Expected credit losses are calculated for wholesale
credit exposures by formula in conformity with the
Basel III rule.
G-SIB Surcharge
The eight U.S. bank holding companies deemed
to be G-SIBs, including us, are required to calculate
the G-SIB surcharge annually according to two
methods, and be bound by the higher of the two:
• Method 1: Assesses systemic
upon
importance
equally-weighted
based
components:
interconnectedness,
complexity, cross-jurisdictional activity and
substitutability; or
size,
five
• Method 2: Alters the calculation from Method 1
by factoring in a short-term wholesale funding
score in place of substitutability and applying a
fixed coefficient
five
components.
to each of
the
Method 2 is the binding methodology for us as of
December 31, 2021, and our applicable surcharge for
2022 was calculated
to be 1.0% based on a
calculation date as of December 31, 2019. Based on
a calculation date as of December 31, 2020, our G-
SIB surcharge could have been 1.5%, which under
the generally applicable provisions of the capital
rules, absent regulatory relief, would go into effect on
January 1, 2023. However, in May 2021, the Federal
Reserve granted our request for relief relating to the
effects of the Money Market Mutual Fund Liquidity
Facility (MMLF) program on the calculation of our G-
SIB surcharge. As a result of this relief, our G-SIB
surcharge for 2023 will remain 1.0%. As noted above,
our G-SIB surcharge must be calculated annually,
and year-over-year changes in our Method 1 or
Method 2 G-SIB scores may therefore result in
changes to our G-SIB surcharge. If our Method 1 or
Method 2 score changes year-over-year such that we
would become subject to a higher surcharge, the
higher surcharge would not become effective for two
years from the "as of" date (e.g., a higher surcharge
calculated as of December 31, 2022 would not
become effective until January 1, 2025). If, however,
our Method 1 or Method 2 score changes year-over-
year such that we would become subject to a lower
surcharge, we would be subject
lower
surcharge beginning one full year from the "as of"
lower surcharge calculated as of
date (e.g., a
December 31, 2022 would become effective January
1, 2024).
the
to
Stress Capital Buffer
rule
final
scenario of
replaces, under
On March 4, 2020, the U.S. Agencies issued
the SCB
the
that
standardized approach, the fixed capital conservation
buffer (2.5%) with an SCB calculated as
the
difference between
institution’s starting and
the
lowest projected CET1 ratio under the severely
the Federal Reserve’s
adverse
supervisory stress test plus planned common stock
dividend payments (as a percentage of RWA) from
the fourth through seventh quarter of the supervisory
stress testing planning horizon. Based on our results
from the 2021 supervisory stress test, our SCB for the
period of October 1, 2021 through September 2022 is
set at the minimum of 2.5% of RWA. For additional
information about the SCB final rule, refer to “Capital
Planning, Stress Tests and Dividends”
this
"Supervision and Regulation" section.
in
Under the SCB final rule, a banking organization
would be able to make capital distributions and
discretionary bonus payments without specified
quantitative limitations (although subject to other
potential regulatory constraints, such as supervisory
limitations), as long as it maintains its required SCB
plus
the applicable G-SIB surcharge (plus any
potentially applicable countercyclical capital buffer)
over the minimum required risk-based capital ratios
and as long as it satisfies all leverage based capital
requirements and buffers. From time to time, under
certain economic conditions, banking regulators may
establish a minimum countercyclical capital buffer up
to a maximum of 2.5% of
total RWA. The
countercyclical capital buffer was initially set by
banking regulators at zero, and has not been
increased since its inception.
Assuming a countercyclical buffer of 0%, the
minimum capital ratios as of January 1, 2022,
including a capital conservation buffer and an SCB of
2.5% for advanced and standardized approaches,
respectively, and a G-SIB surcharge of 1.0%, are
8.0% for CET1 capital, 9.5% for Tier 1 risk-based
capital and 11.5% for total risk-based capital, in order
for us to make capital distributions and discretionary
bonus payments without limitation.
State Street Corporation | 12
Leverage Ratios
We are subject to a minimum Tier 1 leverage ratio and a supplementary leverage ratio. The Tier 1 leverage
ratio is based on Tier 1 capital and adjusted quarterly average on-balance sheet assets. The Tier 1 leverage ratio
differs from the SLR primarily in that the denominator of the Tier 1 leverage ratio is a quarterly average of on-
balance sheet assets, while the SLR includes both on-balance sheet and certain off-balance sheet exposures. We
must maintain a minimum Tier 1 leverage ratio of 4%.
We are also subject to a minimum SLR of 3%, and as a U.S. G-SIB, we must maintain an additional 2% SLR
buffer in order to avoid any limitations on distributions to shareholders and discretionary bonus payments to certain
executives. If we do not maintain this buffer, limitations on these distributions and discretionary bonus payments
would be increasingly stringent based upon the extent of the shortfall.
In November 2019, pursuant to the EGRRCPA, the U.S. Agencies adopted a final rule that excludes central
bank deposits from a custodial banking organization’s total leverage exposure for purpose of calculating the SLR
and which is not applicable to total leverage exposure under the calculation of Tier 1 leverage. This exclusion is
equal to the lesser of (i) the total amount of funds the custodial banking organization and its consolidated
subsidiaries have on deposit at qualifying central banks and (ii) the total amount of client funds on deposit at the
custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts. The rule became
effective on April 1, 2020. For the quarter ended December 31, 2021, we excluded $84.1 billion of average balances
held on deposit at central banks from the denominator used in the calculation of our SLR based on this custodial
banking exclusion. The TLAC and LTD that State Street is required to hold under SLR-based requirements reflect
the exclusion of certain central bank balances as a consequence of the rule.
The SA-CCR final rule adopted in November 2019, which went into effect for us on January 1, 2022, also
requires us to incorporate the SA-CCR into the calculation of our total leverage exposure for the purpose of
calculating SLR.
In 2018, the Federal Reserve proposed modifications to the SLR that would replace the current 2% SLR buffer
applicable to us with an SLR buffer equal to 50% of our applicable G-SIB capital surcharge. The Federal Reserve
has not finalized these proposed modifications.
Selected Recent Regulatory Developments Summary
Final Rule Issued
Final Rule Effective Date
Description
August 2020
January 1, 2021
October 2020
April 1, 2021
October 2020
July 1, 2021
November 2019
January 1, 2022
In March 2020, the U.S. Agencies issued an interim final rule (followed by a final rule in
August 2020) that revised the definition of eligible retained income for all U.S. banking
organizations, including us. The revised definition of eligible retained income makes any
automatic limitations on capital distributions that could apply to us under the federal banking
agencies’ capital or TLAC rules take effect on a more gradual basis in the event that our
capital, leverage or TLAC ratios were to decline below regulatory requirements, including
regulatory capital, leverage or TLAC buffers, as applicable.
The U.S. Agencies issued a final rule that requires us and State Street Bank to make
deductions from regulatory capital for investments in certain unsecured debt instruments
issued by bank holding companies and U.S. intermediate holding companies of foreign
banks that are subject to the Federal Reserve’s TLAC and LTD requirements, as well as
foreign G-SIBs.
In October 2020, the U.S. Agencies issued a final rule implementing the Basel Committee on
Banking Supervision's (BCBS) NSFR in the United States, which applies to us and State
Street Bank. The final rule requires large banking organizations to maintain an amount of
available stable funding, which is a weighted measure of a company’s funding sources over
a one-year time horizon, calculated by applying standardized weightings to the company’s
equity and liabilities based on their expected stability, that is no less than the amount of
required stable funding, which is calculated by applying standardized weightings to assets,
derivatives exposures and certain other items based on their liquidity characteristics.
The U.S. Agencies issued a final rule that, among other things, implements the standardized
approach for counterparty credit risk (SA-CCR), a methodology for calculating the exposure
amount for derivative contracts under the U.S. regulatory capital rules. Under the final rule,
we have the option to use the SA-CCR or the Internal Model Methodology (IMM) to measure
the exposure amount of our cleared and uncleared derivative transactions under our
advanced approaches calculation. We have elected to use the SA-CCR for purposes of our
advanced approaches capital calculations. We are required to determine the amount of these
exposures using the SA-CCR under our standardized approach capital calculation. Due to
the nature of our trading activities, the final rule is likely to have a greater proportional impact
on our RWA than on some of our G-SIB peers. In addition, under the final rule we are
required to use a simplified formula to determine the RWA amount of our central counterparty
default fund contributions. The final rule also requires us to incorporate the SA-CCR into the
calculation of our total leverage exposure for the purpose of calculating SLR.
State Street Corporation | 13
As a G-SIB, we are subject to enhanced
supervision and prudential standards. Our status as a
G-SIB has also resulted in heightened prudential and
conduct expectations of our U.S. and international
regulators with respect to our capital and liquidity
management and our compliance and risk oversight
programs. These heightened expectations have
increased our regulatory compliance costs, including
personnel, technology and systems, as well as
implementation and related
significant additional
costs
regulatory compliance
programs. Regulatory compliance requirements are
anticipated to remain at least at the elevated levels
we have experienced over the past several years.
to enhance our
Failure to meet current and future regulatory
capital requirements could subject us to a variety of
enforcement actions, including the termination of
State Street Bank's deposit insurance by the FDIC,
and to certain restrictions on our business, including
those that are described above in this “Supervision
and Regulation” section.
Not all of our competitors have similarly been
designated as systemically important nor are all of
them subject to the same degree of regulation as a
bank or financial holding company, and therefore
some of our competitors may not be subject to the
same additional capital requirements.
For additional information about our regulatory
capital position and our regulatory capital adequacy,
as well as current and future regulatory capital
requirements,
“Financial
Condition" in our Management's Discussion and
Analysis, and Note 16 to the consolidated financial
statements in this Form 10-K.
"Capital"
refer
to
in
Total Loss-Absorbing Capacity
The Federal Reserve has rules on TLAC, LTD
and clean holding company requirements for U.S.
domiciled G-SIBs, such as us. The requirements are
intended to improve the resiliency and resolvability of
certain U.S. banking organizations through enhanced
prudential standards. The TLAC rule imposes: (1)
external TLAC requirements (i.e., combined eligible
Tier 1 regulatory capital and LTD); (2) separate
external LTD requirements; and (3) clean holding
company requirements that impose restrictions on
certain types of liabilities and limit non-TLAC related
third party liabilities to 5% of external TLAC.
Among other things, the TLAC rule requires us
to comply with minimum requirements for external
TLAC and external LTD. Specifically, as of January
2022, we must hold
(1) combined eligible Tier 1 regulatory capital and
LTD in the amount equal to the greater of
21.5% of total RWA (18.0% minimum plus a
2.5% capital conservation buffer plus a G-SIB
these purposes
surcharge calculated
under Method 1 of 1.0% plus any applicable
for
counter-cyclical buffer, which is currently 0%)
and 9.5% of total leverage exposure (7.5%
minimum plus the enhanced SLR buffer of
2.0%), as defined by the SLR rule; and
(2) qualifying external LTD equal to the greater of
7.0% of RWA (6.0% minimum plus a G-SIB
surcharge calculated
these purposes
under Method 2 of 1.0%) and 4.5% of total
leverage exposure, as defined by the SLR
rule.
for
for
required
investments
to make deductions
Additionally, effective April 1, 2021, certain large
banking organizations, such as us and State Street
from
Bank, are
regulatory capital
in certain
unsecured debt instruments issued by bank holding
companies and U.S. intermediate holding companies
of foreign banks that are subject to the Federal
Reserve’s TLAC and LTD requirements, as well as
foreign G-SIBs.
Liquidity Coverage Ratio and Net Stable Funding
Ratio
In addition to capital standards, the Basel III
liquidity
two quantitative
framework
standards: the LCR and the NSFR.
introduced
We are subject to the rule issued by the U.S.
Agencies implementing the BCBS's LCR in the U.S.
The LCR is intended to promote the short-term
banking
of
resilience
organizations,
the banking
to
industry's ability to absorb shocks arising from market
stress over a 30 calendar day period and improve the
measurement and management of liquidity risk.
internationally
like us,
improve
active
The LCR measures an
institution’s HQLA
against its net cash outflows under a prescribed
stress environment. We report LCR to the Federal
Reserve daily and are required to calculate and
maintain an LCR that is equal to or greater than
100%.
In addition, we publicly disclose certain
qualitative and quantitative information about our LCR
consistent with the requirements of the Federal
Reserve's final rule.
Compliance with the LCR has required that we
maintain an investment portfolio that contains an
In general, HQLA
adequate amount of HQLA.
investments generate a lower investment return than
other types of investments, resulting in a negative
impact on our NII and our NIM. In addition, the level
of HQLA we are required to maintain under the LCR
is dependent upon our client relationships and the
nature of services we provide, which may change
over time. Deposits resulting from certain services
provided (“operational deposits”) are treated as more
resilient during periods of stress than other deposits.
As a result, if balances of operational deposits
increased relative to our total client deposit base, we
would expect to require less HQLA in order to
if balances of
maintain our LCR. Conversely,
State Street Corporation | 14
operational deposits decreased relative to our total
client deposit base, we would expect to require more
HQLA. On May 5, 2020, the U.S. banking agencies
issued a rule that modifies the LCR rule to neutralize
the impact on LCR of the advances made by the
MMLF (and Paycheck Protection Liquidity Facility
program) and the exposures securing such advances.
calculated by applying
In October 2020, the U.S. Agencies issued a
final rule implementing the BCBS’s NSFR in the
United States. The final rule requires large banking
organizations to maintain an amount of available
stable funding, which is a weighted measure of a
company’s funding sources over a one-year time
horizon,
standardized
weightings to the company’s equity and liabilities
based on their expected stability, that is no less than
the amount of required stable funding, which is
calculated by applying standardized weightings to
assets, derivatives exposures and certain other items
based on their liquidity characteristics. As a U.S. G-
SIB, we are required to maintain an NSFR that is
equal to or greater than 100%. The final rule became
effective as of July 1, 2021. The final rule requires us
to publicly disclose our quarterly NSFR on a
semiannual basis beginning in 2023.
Capital Planning, Stress Tests and Dividends
Pursuant to the Dodd-Frank Act, the Federal
Reserve has adopted capital planning and stress test
requirements for large bank holding companies,
including us, which form part of the Federal Reserve’s
annual stress testing and capital planning framework.
The Federal Reserve conducts its own stress tests of
our business operations using supervisory models,
referred to as supervisory stress tests, the results of
which it uses to calibrate our annual SCB, subject to
a minimum of 2.5%. In addition, under the Federal
Reserve’s capital plan rule, we must conduct periodic
stress testing of our business operations and submit
an annual capital plan to the Federal Reserve, taking
into account the results of separate stress tests
designed by us and by the Federal Reserve. The
Federal Reserve conducts a qualitative assessment
of our capital plan as part of the annual supervisory
process known as CCAR, to evaluate the strength of
our capital planning practices, including our ability to
identify, measure, and determine the appropriate
amount of capital for our risks, and controls and
governance supporting capital planning.
stress
capital planning and
The Federal Reserve's final rule to integrate its
annual
testing
requirements with certain ongoing regulatory capital
requirements applies
to certain bank holding
companies, including us. The final rule introduced an
SCB and related changes to the capital planning and
stress testing processes. The standardized approach
SCB equals the greater of (i) 2.5%; and (ii) the
maximum decline in our CET1 capital ratio under the
severely adverse scenario over the supervisory stress
test measurement period, plus the ratio of (a) the sum
of the dollar amount of our planned common stock
dividends for the fourth through seventh quarters of
the supervisory stress test projection period to (b) our
projected RWA for the quarter in which our projected
CET1 capital ratio reaches its minimum in the
test. Risked-based regulatory
supervisory stress
capital
standardized
approach include the SCB, as summarized above, as
well as our G-SIB capital surcharge and any
applicable countercyclical capital buffer.
requirements under
the
The final rule made related changes to capital
planning and stress testing processes for bank
holding companies subject to the SCB requirement.
In particular, the final rule assumes that bank holding
companies maintain a constant level of assets and
RWA throughout the supervisory stress test projection
period. In addition, under the final rule the supervisory
stress test no longer assumes that bank holding
companies make all nine quarters of planned capital
distributions under stress, although
the SCB
incorporates the dollar amount of four quarters of
planned common stock dividends, as described
above.
The final rule did not change regulatory capital
requirements under the advanced approaches, the
Tier 1 leverage ratio or the SLR.
Our SCB requirement was 2.5% for the period
from October 1, 2020 through September 30, 2021.
On June 24, 2021, we were notified by the Federal
Reserve of the results from the 2021 supervisory
stress test, including our preliminary SCB of 2.5%.
Our SCB calculated under the 2021 supervisory
stress test was well below the 2.5% minimum,
resulting in an SCB at that floor, which went into
effect starting October 1, 2021 and which will be
effective through September 30, 2022.
Although the final SCB rule changed the effects
of the CCAR and supervisory stress test processes
so that the SCB, rather than CCAR, is the source of
our stress-based capital requirements, we continue to
be subject to CCAR's capital plan requirements and
the supervisory assessment of our capital planning
activities. Under the capital planning requirements,
our annual capital plan must include a description of
all of our planned capital actions over a nine-quarter
planning horizon, including any capital qualifying
instruments, any capital distributions, such as
payments of dividends on, or repurchases of, our
stock, and any similar action that the Federal Reserve
determines could affect our consolidated capital. The
capital plan must include a discussion of how we will
maintain capital above the minimum regulatory capital
ratios, including the minimum ratios under the Basel
III rule, and serve as a source of strength to State
Street Bank under supervisory stress scenarios.
Changes in our strategy, merger or acquisition activity
State Street Corporation | 15
or unanticipated uses of capital could result in a
change in our capital plan and its associated capital
actions, including capital raises or modifications to
planned capital actions, such as repurchases of our
stock, and may require resubmission of the capital
plan to the Federal Reserve if, among other reasons,
we would not meet our
regulatory capital
the proposed capital
requirements after making
distribution.
In addition to its stress testing and capital
planning requirements, the Federal Reserve has the
authority to prohibit or to limit the payment of
dividends, the repurchase of common stock, or other
capital actions that reduce capital by the banking
organizations it supervises, including the Parent
Company and State Street Bank, if, in the Federal
Reserve’s opinion, the capital action would constitute
an unsafe or unsound practice in light of the financial
condition of the banking organization. All of these
policies and other requirements could affect our
ability to pay dividends and repurchase our stock or
require us to provide capital assistance to State
Street Bank and any other banking subsidiary. Our
common stock and other stock dividends, including
the declaration, timing and amount thereof, remain
subject to consideration and approval by our Board of
Directors at the relevant times.
for
repurchase program
In January 2021, our Board authorized a
the
common share
repurchase of up to $475 million of our common stock
through March 31, 2021. We
repurchased
$475 million of our common stock in the first quarter
of 2021. In April 2021, our Board authorized a
common share
the
repurchase of up to $425 million of our common stock
through June 30, 2021, in compliance with the limit
the Federal Reserve. We repurchased
set by
$425 million of our common stock in the second
quarter of 2021. In July 2021, our Board authorized a
share repurchase program for the repurchase of up to
$3.0 billion of our common stock through the end of
2022.
repurchase program
for
In connection with our planned acquisition of the
BBH
Investor Services business, we did not
repurchase any common stock during the third and
fourth quarters of 2021 under the common share
repurchase plan approved by our Board in July 2021,
and we do not intend to repurchase any common
stock during the first quarter of 2022. We intend to
resume our common share repurchases during the
second quarter of 2022.
In September 2021, we completed a public
offering of approximately 21.7 million shares of our
common stock. The offering price was $87.60 per
share and net proceeds
totaled approximately
$1.9 billion. We expect to use these net proceeds to
finance our planned acquisition of the BBH Investor
Services business.
trading programs. The
When permitted, stock purchases may be made
using various types of mechanisms, including open
market purchases, accelerated share repurchases or
transactions off market, and may be made under Rule
10b5-1
timing of stock
purchases, types of transactions and number of
shares purchased will depend on several factors,
including market conditions and State Street’s capital
positions,
investment
financial performance and
opportunities. Our common stock purchase programs
do not have specific price targets and may be
suspended at any time. We may employ third-party
broker/dealers to acquire shares on the open market
in connection with our common stock purchase
programs. The common stock purchase program
does not have specific price targets and may be
suspended at any time.
required
The Federal Reserve, under the Dodd-Frank
Act, previously required us to conduct semi-annual
State Street-run stress tests and to publicly disclose
the summary results of our State Street-run stress
tests under the severely adverse economic scenario.
We are also
to undergo an annual
supervisory stress test conducted by the Federal
Reserve. The EGRRCPA modifies certain aspects of
these stress-testing
the
the Federal Reserve’s
number of scenarios
supervisory stress
two and
to
modifying our obligation to perform company-run
stress-tests from semi-annually to annually. The
Federal Reserve adopted a final rule in October 2019
that, among other
this
modification.
requirements,
implemented
reducing
things,
three
from
test
in
The Volcker Rule
We are subject
the Volcker Rule and
to
implementing regulations. The Volcker Rule prohibits
banking entities, including us and our affiliates, from
engaging in certain prohibited proprietary trading
activities, as defined in the Volcker Rule regulations,
subject to exemptions for market-making related
activities, risk-mitigating hedging, underwriting and
certain other activities. The Volcker Rule also requires
banking entities to either restructure or divest certain
ownership
relationships with,
in, and
covered funds (as such terms are defined in the
Volcker Rule regulations).
interests
The Volcker Rule regulations require banking
entities to establish extensive programs designed to
promote compliance with the restrictions of the
Volcker Rule. We have established a compliance
program that we believe complies with the Volcker
Rule
in effect. Our
compliance program restricts our ability in the future
to service certain types of funds, in particular covered
funds for which State Street Global Advisors acts as
an advisor and certain types of trustee relationships.
Consequently, Volcker Rule compliance entails both
regulations as currently
State Street Corporation | 16
the cost of a compliance program and loss of certain
revenue and future opportunities.
Enhanced Prudential Standards
the
The Dodd-Frank Act, as amended by
EGRRCPA, establishes a systemic risk regime to
which large bank holding companies with $100 billion
or more in consolidated assets, such as us, are
subject. The Federal Reserve is required to tailor the
application of the enhanced prudential standards to
bank holding companies based on
their size,
complexity, risk profile and other factors. U.S. G-SIBs,
such as us, are expected to remain subject to the
most stringent requirements, including heightened
capital,
liquidity and risk management
requirements and single-counterparty credit limits
(SCCL).
leverage,
can
recommend
The FSOC
prudential
standards, reporting and disclosure requirements for
SIFIs to the Federal Reserve, and must approve any
finding by the Federal Reserve that a financial
institution poses a grave threat to financial stability
and must undertake mitigating actions. The FSOC is
also empowered to designate systemically important
payment, clearing and settlement activities of
financial institutions, subjecting them to prudential
supervision and regulation, and, assisted by the
Office of Financial Research within
the U.S.
Department of the Treasury, can gather data and
reports from financial institutions, including us.
Under
various
comply with
liquidity-related
the Federal Reserve's enhanced
prudential standards regulation under the Dodd-Frank
Act, as amended by the EGRRCPA, we are required
to
risk
management standards and maintain a liquidity buffer
of unencumbered highly liquid assets based on the
results of internal liquidity stress testing. This liquidity
buffer is in addition to other liquidity requirements,
such as the LCR and the NSFR. The regulations also
establish requirements and responsibilities for our risk
committee and mandate risk management standards.
In 2018, the Federal Reserve finalized rules that
established SCCL for large banking organizations.
U.S. G-SIBs, including us, are subject to a limit of
15% of Tier 1 capital for aggregate net credit
exposures to any “major counterparty” (defined to
include other U.S. G-SIBs, foreign G-SIBs and non-
bank SIFIs supervised by the Federal Reserve). In
addition, we are subject to a limit of 25% of Tier 1
capital for aggregate net credit exposures to any
other unaffiliated counterparty. The final SCCL rules
became effective for us on January 1, 2020.
contractual
The Federal Reserve has established a rule that
imposes
certain
“qualified financial contracts” to which U.S. G-SIBs,
including us, and their subsidiaries are parties. Under
the rule, certain qualified financial contracts generally
must expressly provide that transfer restrictions and
requirements on
II of
the Dodd-Frank Act and
default rights against a U.S. G-SIB, or subsidiary of a
U.S. G-SIB, are limited to the same extent as they
would be under the Federal Deposit Insurance Act
their
and Title
implementing regulations. In addition, certain qualified
financial contracts may not, among other things,
permit the exercise of any cross-default right against
a U.S. G-SIB or subsidiary of a U.S. G-SIB based on
an affiliate’s entry into insolvency, resolution or similar
proceedings, subject to certain creditor protections.
The systemic-risk regime also provides that for
U.S. G-SIBs deemed to pose a grave threat to U.S.
financial stability, the Federal Reserve, upon an
FSOC vote, must limit that institution’s ability to
merge, restrict its ability to offer financial products,
require it to terminate activities, impose conditions on
activities or, as a last resort, require it to dispose of
assets. Upon a grave threat determination by the
FSOC, the Federal Reserve must issue rules that
require financial institutions subject to the systemic-
risk regime to maintain a debt-to-equity ratio of no
more than 15 to 1 if the FSOC considers it necessary
to mitigate the risk of the grave threat. The Federal
Reserve also has the ability to establish further
standards,
regarding contingent
those
capital, enhanced public disclosures and limits on
short-term
sheet
including
exposures.
off-balance
including
debt,
Recovery and Resolution Planning
Under Section 165(d) of the Dodd-Frank Act, we
are required to submit a resolution plan on a biennial
basis jointly to the Federal Reserve and the FDIC (the
Agencies). The purpose of our resolution plan is to
describe our preferred resolution strategy and to
demonstrate
resources and
capabilities to execute on that strategy in the event of
major financial distress. Through resolution planning,
we seek to maintain our role as a key infrastructure
provider within the financial system, while minimizing
risk to the financial system.
that we have
the
The final rule requires a full resolution plan and
a targeted resolution plan on an alternating basis in
the relevant submission years. We submitted our
updated 2021 targeted 165(d) resolution plan by July
1, 2021. The targeted resolution plan included the
core elements of resolution planning and some
specific firm level information about the impact of the
COVID-19 pandemic on resolution planning.
In
the 2019
addition, actions
shortcoming
implementation of
governance mechanisms were included in the plan.
Our next full resolution plan is due July 1, 2023.
to remediate
the
taken
to
related
In the event of material financial distress, our
preferred resolution strategy is the Single Point of
Entry (SPOE) Strategy. The SPOE Strategy provides
that prior to the bankruptcy of the Parent Company
and pursuant to a support agreement among the
State Street Corporation | 17
Parent Company, SSIF (a direct subsidiary of the
Parent Company), our Beneficiary Entities (as defined
below) and certain of our other entities, SSIF is
obligated, up to its available resources, to recapitalize
and/or provide liquidity to State Street Bank and the
other entities benefiting from such capital and/or
liquidity support (collectively with State Street Bank,
to
“Beneficiary Entities”),
prevent the Beneficiary Entities from themselves
entering into resolution proceedings. Following the
recapitalization of, or provision of liquidity to the
Beneficiary Entities, the Parent Company would enter
into a bankruptcy proceeding under
the U.S.
Bankruptcy Code. The Beneficiary Entities and our
other subsidiaries would be transferred to a newly
organized holding company held by a reorganization
trust
the Parent Company’s
claimants.
in amounts designed
the benefit of
for
Parent Company and SSIF would use to fulfill their
obligations under the support agreement to the
Beneficiary Entities. SSIF is a distinct legal entity
separate from the Parent Company and the Parent
Company’s other affiliates.
In accordance with our policies, we are required
to monitor, on an ongoing basis, the capital and
liquidity needs of State Street Bank and our other
Beneficiary Entities. To support this process, we have
established a trigger framework that identifies key
actions that would need to be taken or decisions that
would need to be made if certain events tied to our
financial condition occur. The trigger thresholds are
set at levels intended to provide for the availability of
sufficient capital and liquidity to enable an orderly
resolution without extraordinary government support
that results in us emerging from resolution as a
stabilized institution with market confidence restored.
In
for
basis.
Under
consideration
in
the Parent
the support agreement,
Company pre-funded SSIF by contributing certain of
its assets (primarily its liquid assets, cash deposits,
investments in intercompany debt, investments in
marketable securities and other cash and non-cash
equivalent investments) to SSIF at the time it entered
into the support agreement and will continue to
contribute such assets, to the extent available, on an
ongoing
these
contributions, SSIF has agreed
the support
agreement to provide capital and liquidity support to
the Parent Company and all of the Beneficiary
Entities in accordance with the Parent Company’s
capital and liquidity policies. Under the support
agreement, the Parent Company is only permitted to
retain cash needed to meet its upcoming obligations
and to fund expected expenses during a potential
bankruptcy proceeding. SSIF has provided the Parent
Company with a committed credit line and issued
(and may issue) one or more promissory notes to the
Parent Company (the "Parent Company Funding
Notes") that together are intended to allow the Parent
its obligations
Company
throughout the period prior to the occurrence of a
"Recapitalization Event", which is defined as the
earlier occurrence of: (1) one or more capital and
the
thresholds being breached or
liquidity
authorization by the Parent Company's Board of
Directors for the Parent Company to commence
bankruptcy proceedings. The support agreement
does not obligate SSIF to maintain any specific level
of resources and SSIF may not have sufficient
resources to implement the SPOE Strategy.
to continue
to meet
(2)
In the event a Recapitalization Event occurs, the
obligations outstanding under the Parent Company
Funding Notes would automatically convert into or be
exchanged
to SSIF. The
obligations of the Parent Company and SSIF under
the support agreement are secured through a security
agreement that grants a lien on the assets that the
for capital contributed
Upon
the support agreement
the occurrence of a Recapitalization
Event: (1) SSIF would not be authorized to provide
any further liquidity to the Parent Company; (2) the
Parent Company would be required to contribute to
SSIF any remaining assets it is required to contribute
(which
to SSIF under
specifically exclude amounts designated to fund
expected expenses during a potential bankruptcy
proceeding); (3) SSIF would be required to provide
capital and liquidity support to the Beneficiary Entities
to support such entities’ continued operation to the
extent of its available resources and consistent with
the support agreement; and (4) the Parent Company
to commence Chapter 11
would be expected
proceedings under the U.S. Bankruptcy Code. No
person or entity, other than a party to the support
agreement, should rely on any of our affiliates being
or remaining a Beneficiary Entity or receiving capital
the support
or
agreement, including in evaluating any of our entities
from a creditor's perspective or determining whether
to enter into a contractual relationship with any of our
entities.
liquidity support pursuant
to
State Street Bank is also required to submit
periodically to the FDIC a plan for resolution in the
event of its failure, referred to as an IDI plan. We
submitted our last IDI plan before July 1, 2018. In
November 2018, the FDIC had announced that until
the FDIC completed revisions
IDI plan
requirements, no IDI plans would be required to be
filed. On June 25, 2021, the FDIC issued a policy
statement on resolution plans for IDIs that allows for
content streamlining and adjusts the frequency of
submissions to a three-year cycle. State Street
Bank’s next IDI plan submission deadline will be
December 1, 2023.
its
to
Additionally, we are required
to submit a
recovery plan to the Federal Reserve. This plan
and
includes
contingency actions that can be implemented in a
governance
detailed
triggers
State Street Corporation | 18
timely manner in the event of extreme financial
distress in those entities. We also have recovery
planning
international
jurisdictions where we operate.
requirements
in certain
Orderly Liquidation Authority
to
Under the Dodd-Frank Act, certain financial
companies, including bank holding companies such
the Parent Company, and certain covered
as
subsidiaries, can be subjected
the orderly
liquidation authority, which went into effect in 2010.
For the FDIC to be appointed as our receiver, two-
thirds of the FDIC Board and two-thirds of the Federal
Reserve Board must recommend appointment, and
the U.S. Treasury Secretary, in consultation with the
U.S. President, must then make certain extraordinary
financial distress and systemic risk determinations.
Absent such actions, we, as a bank holding company,
would remain subject to the U.S. Bankruptcy Code.
The orderly liquidation authority went into effect
in 2010, and rulemaking is proceeding incrementally,
with some regulations now finalized and others
planned but not yet proposed. If the FDIC were
appointed as the receiver of the Parent Company
pursuant to the orderly liquidation authority, the FDIC
would have considerable powers to resolve the
Parent Company, including: (1) the power to remove
officers and directors responsible for the Parent
Company's failure and to appoint new directors and
officers; (2) the power to assign assets and liabilities
to a third party or bridge financial company without
the need for creditor consent or prior court review; (3)
the ability to differentiate among similarly situated
creditors, subject to a minimum recovery right to
receive at least what they would have received in
bankruptcy liquidation; and (4) broad powers to
to determine
administer
distributions from the assets of the receivership to
creditors not transferred to a third party or bridge
financial institution.
the claims process
In 2013, the FDIC released its proposed SPOE
strategy for resolution of a SIFI under the orderly
liquidation authority. The FDIC’s release outlines how
it would use its powers under the orderly liquidation
authority to resolve a SIFI by placing its top-tier U.S.
holding company in receivership and keeping its
operating subsidiaries open and out of insolvency
proceedings by transferring the operating subsidiaries
to a new bridge holding company, recapitalizing the
operating subsidiaries and imposing losses on the
shareholders and creditors of the holding company in
receivership according to their statutory order of
priority.
Derivatives
Title VII of the Dodd-Frank Act imposed a
comprehensive regulatory structure on the OTC
for
derivatives market,
clearing, exchange trading, capital, margin, reporting
requirements
including
and record-keeping. Title VII also requires certain
persons to register as a major swap participant, a
swap dealer or a securities-based swap dealer. The
CFTC, the SEC, and other U.S. regulators have
largely implemented key provisions of Title VII,
although certain final regulations have only been in
place a short period of time and others have not been
finalized. Through this rulemaking process, these
regulators collectively have adopted or proposed,
among other things, regulations relating to reporting
and record-keeping obligations, margin and capital
requirements, the scope of registration and the
central clearing and exchange trading requirements
for certain OTC derivatives. The CFTC has also
issued rules to enhance the oversight of clearing and
trading entities. The CFTC, along with other
regulators, including the Federal Reserve, have also
issued rules with respect to margin requirements for
uncleared derivatives transactions.
State Street Bank has registered provisionally
with the CFTC as a swap dealer. As a provisionally
registered swap dealer, State Street Bank is subject
to significant regulatory obligations regarding its swap
the supervision, examination and
activity and
enforcement powers of
the CFTC and other
regulators. The CFTC has granted State Street Bank
a limited-purpose swap dealer designation. Under this
limited-purpose designation,
rate swap
activity conducted by State Street Bank’s Global
Treasury group is not subject to certain of the swap
regulatory
to
swaps entered into by a registered swap dealer,
subject to a number of conditions. For all other swap
transactions, our swap activities remain subject to all
applicable swap dealer regulations.
requirements otherwise applicable
interest
Subsidiaries
The Federal Reserve is the primary federal
banking agency responsible for regulating us and our
subsidiaries, including State Street Bank, with respect
to both our U.S. and non-U.S. operations. Our
banking subsidiaries are subject to supervision and
examination by various regulatory authorities and
have regulatory requirements that may differ from
State Street Corporation.
State Street Bank
State Street Bank is a member of the Federal
Reserve System, its deposits are insured by the FDIC
and it is subject to applicable federal and state
banking laws and to supervision and examination by
the Federal Reserve, as well as by
the
Massachusetts Commissioner of Banks, the FDIC,
and the regulatory authorities of those states and
countries in which State Street Bank operates a
branch.
As with the Parent Company, State Street Bank
is considered an advanced approaches banking
organization subject to the Basel III framework in the
State Street Corporation | 19
U.S. and is also subject to the market risk capital rule
jointly issued by U.S. Agencies to implement the
changes to the market risk capital framework in the
U.S. As required by the Dodd-Frank Act, State Street
Bank, as an advanced approaches banking
organization, is subject to a "capital floor," also
referred
the
to as
regulatory capital adequacy,
assessment of
including
the capital conservation buffer and
countercyclical capital buffer described above in this
"Supervision and Regulation" section.
the Collins Amendment,
its
in
Under the Basel III rule, State Street Bank's
regulatory capital calculations, including any additions
or deductions from capital for regulatory purposes,
are consistent with the calculations of the Parent
Company.
Similar to our Parent Company, State Street
Bank is subject to the Tier 1 leverage ratio and the
supplementary leverage ratio. However, as State
Street Bank is the insured depository institution
subsidiary of one of the eight U.S. G-SIBs, it is
required to maintain a minimum Tier 1 leverage ratio
of 5% and a minimum SLR of 6% to be considered
well capitalized.
Furthermore, for the purposes of calculating the
SLR, State Street Bank is similarly subject to a final
rule adopted by the U.S. Agencies that excludes
central bank deposits from a custodial banking
organization’s
the
quarter ended December 31, 2021, State Street Bank
excluded $84.1 billion of average balances held on
deposit at central banks from the denominator used
in the calculation of our SLR based on this custodial
banking exclusion.
leverage exposure. For
total
Pursuant to the BCBS's NSFR final rule, as a
subsidiary of a U.S. G-SIB, State Street Bank is
similarly required to maintain an NSFR that is equal
to or greater than 100%.
those of our subsidiaries, on
We and our subsidiaries that are not subsidiaries
of State Street Bank are affiliates of State Street Bank
under federal banking laws, which impose restrictions
on various types of transactions, including loans,
extensions of credit, investments or asset purchases
by or from State Street Bank, on the one hand, to us
and
the other.
Transactions of this kind between State Street Bank
and its affiliates generally are limited with respect to
each affiliate to 10% of State Street Bank’s capital
and surplus, as defined by the aforementioned
banking laws, are limited in the aggregate for all
affiliates to 20% of State Street Bank's capital and
surplus, and in some cases are also subject to strict
securities
requirements. Derivatives,
collateral
borrowing and securities
transactions
between State Street Bank and its affiliates became
subject to these restrictions pursuant to the Dodd-
Frank Act. The Dodd-Frank Act also expanded the
scope of transactions required to be collateralized. In
lending
law also
addition, the Volcker Rule generally prohibits similar
transactions between the Parent Company or any of
its affiliates and covered funds for which we or any of
our affiliates serve as the investment manager,
investment adviser, commodity trading advisor or
sponsor and other covered funds organized and
offered pursuant to specific exemptions in the Volcker
Rule regulations.
Federal
certain
transactions by a bank with affiliates be on terms and
under circumstances, including credit standards, that
are substantially the same, or at least as favorable to
the bank, as
for
those prevailing at
comparable transactions involving other non-affiliated
companies. Alternatively,
the absence of
comparable transactions, the transactions must be on
terms and under circumstances, including credit
standards, that in good faith would be offered to, or
would apply to, non-affiliated companies.
requires
time
that
the
in
is also prohibited
State Street Bank
from
engaging in certain tie-in arrangements in connection
with any extension of credit or lease or sale of
property or
law
provides for a depositor preference on amounts
realized from the liquidation or other resolution of any
depository institution insured by the FDIC.
furnishing of services. Federal
Other Subsidiaries
Our other subsidiary trust companies are subject
to supervision and examination by the OCC, the
Federal Reserve or by the appropriate state banking
regulatory authorities of the states in which they are
organized and operate. Our non-U.S. banking
subsidiaries, and other subsidiaries involved in our
investment servicing business, are subject
to
regulation by the financial regulatory authorities of the
jurisdictions in which they operate. Our subsidiaries
investment management and
involved
securities and markets businesses are regulated by
governments, securities exchanges, self-regulatory
organizations, central banks and regulatory bodies in
U.S. federal and state and non-U.S. jurisdictions,
especially in those jurisdictions in which we maintain
an office.
in our
Many aspects of our investment management
activities are subject to U.S. federal and state, as well
as non-U.S., laws and regulations primarily intended
to benefit the investment holder, rather than our
shareholders. These laws and regulations generally
grant supervisory agencies and bodies broad
administrative powers, including the power to limit or
restrict us
investment
management activities in the event that we fail to
regulations, and
comply with such
to
examination authority. Our business
investment management and trusteeship of collective
trust
to
employee benefit plans is subject to the Employee
Retirement Income Security Act (ERISA), and is
regulated by the U.S. DOL.
funds and separate accounts offered
conducting our
laws and
related
from
State Street Corporation | 20
The majority of our non-U.S. asset servicing
operations are conducted pursuant to the Federal
Reserve's Regulation K through State Street Bank’s
Edge Act subsidiary or through international branches
of State Street Bank. An Edge Act corporation is a
corporation organized under federal law that conducts
foreign business activities. In general, banks may not
make investments in their Edge Act corporations (and
similar state law corporations) that exceed 20% of
their capital and surplus, as defined in the relevant
banking regulations, and the investment of any
amount in excess of 10% of capital and surplus
requires the prior approval of the Federal Reserve.
In addition to our non-U.S. operations conducted
pursuant
to Regulation K, we also make new
investments abroad directly (through us or through
our non-banking subsidiaries) pursuant to the Federal
Reserve's Regulation Y, or through international bank
branch expansion, neither of which is subject to the
to Edge Act
investment
subsidiaries.
limitations applicable
Additionally, Massachusetts has its own bank
holding company statute, under which we, among
other things, may be required to obtain prior approval
by the Massachusetts Board of Bank Incorporation for
an acquisition of more than 5% of any additional
bank's voting shares, or for other forms of bank
acquisitions.
Anti-Money
Transparency
Laundering
and
Financial
financial
We and certain of our subsidiaries are subject to
the Bank Secrecy Act of 1970, as amended by the
USA PATRIOT Act of 2001, and related regulations,
which contain AML and
transparency
provisions and which require implementation of an
AML compliance program, including processes for
verifying client identification and monitoring client
transactions and detecting and reporting suspicious
activities. AML laws outside the U.S. contain similar
implemented policies,
requirements. We have
procedures and internal controls that are designed to
promote compliance with applicable AML laws and
regulations. AML laws and regulations applicable to
our operations may be more stringent than similar
to our non-regulated
requirements applicable
competitors or
institutions principally
operating in other jurisdictions. Compliance with
applicable AML and related requirements
is a
common area of review for financial regulators, and
any failure by us to comply with these requirements
could result in fines, penalties, lawsuits, regulatory
sanctions, difficulties
in obtaining governmental
approvals, restrictions on our business activities or
harm to our reputation.
financial
Deposit Insurance
the
The Dodd-Frank Act made permanent
general $250,000 deposit insurance limit for insured
insured depository
deposits. The FDIC’s Deposit Insurance Fund (DIF) is
funded by assessments on FDIC-insured depository
institutions. The FDIC assesses DIF premiums based
institution's average
on an
consolidated total assets, less the average tangible
equity of the insured depository institution during the
assessment period. For larger institutions, such as
State Street Bank, assessments are determined
based on regulatory ratings and forward-looking
financial measures to calculate the assessment rate,
which is subject to adjustments by the FDIC, and the
assessment base.
that certain
The FDIC is required to determine whether and
to what extent adjustments to the assessment base
are appropriate for “custody banks" that satisfy
specified institutional eligibility criteria. The FDIC has
concluded
liquid assets could be
excluded from the deposit insurance assessment
base of custody banks. This has the effect of reducing
the amount of DIF insurance premiums due from
custody banks. State Street Bank qualifies as a
custody bank for this purpose. The custody bank
total
assessment adjustment may not exceed
the
identified by
transaction account deposits
institution as being directly linked to a fiduciary or
custody and safekeeping asset.
Prompt Corrective Action
The FDIC Improvement Act of 1991 requires the
appropriate federal banking regulator to take “prompt
corrective action” with respect
to a depository
institution if that institution does not meet certain
including minimum
capital adequacy standards,
capital ratios. While these regulations apply only to
banks, such as State Street Bank, the Federal
Reserve is authorized to take appropriate action
against a parent bank holding company, such as our
Parent Company, based on the under-capitalized
status of any banking subsidiary. In certain instances,
we would be required to guarantee the performance
of a capital restoration plan if one of our banking
subsidiaries were undercapitalized.
Support of Subsidiary Banks
to act as a source of
Under Federal Reserve regulations, a bank
holding company such as our Parent Company is
required
financial and
managerial strength to its banking subsidiaries. This
requirement was added to the Federal Deposit
Insurance Act by the Dodd-Frank Act. This means
that we have a statutory obligation
to commit
resources to State Street Bank and any other banking
subsidiary in circumstances in which we otherwise
might not do so absent such a requirement. In the
event of bankruptcy, any commitment by us to a
federal bank regulatory agency to maintain the capital
of a banking subsidiary will be assumed by the
bankruptcy trustee and will be entitled to a priority
payment.
State Street Corporation | 21
Insolvency of an
Depository Institution
Insured U.S. Subsidiary
the
terms of
If the FDIC is appointed the conservator or
receiver of an FDIC-insured U.S. subsidiary
depository institution, such as State Street Bank,
upon its insolvency or certain other events, the FDIC
has the ability to transfer any of the depository
institution’s assets and liabilities to a new obligor
without the approval of the depository institution’s
creditors, enforce
the depository
institution’s contracts pursuant to their terms or
repudiate or disaffirm contracts or leases to which the
depository institution is a party. Additionally, the
claims of holders of deposit liabilities and certain
claims for administrative expenses against an insured
depository institution would be afforded priority over
other general unsecured claims against such an
institution, including claims of debt holders of the
institution
interpretation,
depositors in non-U.S. branches and offices, in the
liquidation or other resolution of such an institution by
any receiver. As a result, such persons would be
treated differently from and could receive, if anything,
substantially less than the depositors in U.S. offices
of the depository institution.
current
under
and,
Cyber Risk Management
cyber
regarding
enhanced
In October 2016, the Federal Reserve, FDIC
and OCC issued an advance notice of proposed
rulemaking
risk
management standards, which would apply to a wide
range of large financial institutions and their third-
party service providers, including us and our banking
subsidiaries. The proposed standards would expand
existing cybersecurity regulations and guidance to
focus on cyber risk governance and management;
management of internal and external dependencies;
resilience and
and
response, cyber
situational awareness.
the proposal
contemplates more stringent standards for institutions
with systems that are critical to the financial sector.
Although the FDIC and OCC in 2019 each withdrew
the advance notice of proposed rulemaking, the
Federal Reserve has not withdrawn the advance
notice and may still propose such a rule.
In addition,
incident
Separately, the Federal Reserve, FDIC and
OCC finalized a rule in November 2021 requiring
banking organizations to notify their primary federal
regulators within 36 hours after
identifying a
that has materially
“computer-security
affected, or is reasonably likely to materially affect,
the viability of their operations, their ability to deliver
banking products and services or the stability of the
financial sector. The final rule will become effective
April 1, 2022.
incident”
Further discussion of
risk
management is provided in "Information Technology
cybersecurity
Risk Management" included in our Management's
Discussion and Analysis in this Form 10-K.
ECONOMIC CONDITIONS AND GOVERNMENT
POLICIES
in reserve requirements
Economic policies of the U.S. government and
its agencies influence our operating environment.
Monetary policy conducted by the Federal Reserve
directly affects the level of interest rates, which may
affect overall credit conditions of
the economy.
Monetary policy is applied by the Federal Reserve
through open market operations in U.S. government
for
securities, changes
depository institutions, and changes in the discount
rate and availability of borrowing from the Federal
Reserve. Government regulation of banks and bank
holding companies is intended primarily for the
protection of depositors of the banks, rather than for
the shareholders of the institutions and therefore may,
in some cases, be adverse to the interests of those
the
shareholders. We are similarly affected by
economic policies of non-U.S. government agencies,
such as the ECB.
STATISTICAL DISCLOSURE BY BANK HOLDING
COMPANIES
The following information included under Items 7
and 8 in this Form 10-K, is incorporated by reference
herein:
"Overview of Financial Results” table (Item 7) -
presents return on average common equity, return on
average assets, common dividend payout and equity-
to-assets ratios.
“Distribution of Average Assets, Liabilities and
Shareholders’ Equity; Interest Rates and Interest
Differential” table (Item 8) - presents consolidated
average balance sheet amounts, related fully taxable-
equivalent interest earned and paid, related average
yields and rates paid and changes in fully taxable-
equivalent interest income and interest expense for
each major category of interest-earning assets and
interest-bearing liabilities.
“Investment Securities” section included in our
Management's Discussion and Analysis (Item 7) and
Note 3, “Investment Securities,” to the consolidated
financial statements (Item 8) - disclose information
regarding book values, market values, maturities and
weighted-average yields of securities (by category).
“Loans” section included in our Management’s
Discussion and Analysis (Item 7) and Note 4, “Loans,”
to the consolidated financial statements (Item 8) -
disclose our policy for placing loans on non-accrual
status and distribution of loans, loan maturities and
sensitivities of loans to changes in interest rates.
“Loans” and
“Cross-Border Outstandings”
sections of Management’s Discussion and Analysis
(Item 7) - disclose information regarding our cross-
border outstandings and other loan concentrations.
State Street Corporation | 22
to
“Loans,”
the consolidated
“Credit Risk Management” section included in
Management’s Discussion and Analysis (Item 7) and
Note 4,
financial
statements (Item 8) - present the allocation of the
allowance for credit losses, and a description of
factors which influenced management’s judgment in
determining amounts of additions or reductions to the
allowance, if any, charged or credited to results of
operations.
“Distribution of Average Assets, Liabilities and
Shareholders’ Equity; Interest Rates and Interest
- discloses deposit
Differential”
information.
(Item 8)
table
Note 8,
the
consolidated financial statements (Item 8) - discloses
information regarding our short-term borrowings.
“Short-Term Borrowings,”
to
ITEM 1A. RISK FACTORS
Risk Factors
In the normal course of our business activities,
we are exposed to a variety of risks. The following is
a discussion of material risk factors applicable to us.
Additional information about our risk management
framework is included under “Risk Management” in
Management’s Discussion and Analysis in this Form
10-K. Additional risks beyond those described in our
Management's Discussion and Analysis or in the
following discussion may apply to our activities or
operations as currently conducted, or as we may
conduct them in the future, or in the markets in which
we operate or may in the future operate.
Strategic Risks
Consummation of our planned acquisition of the
BBH Investor Services business is subject to the
receipt of
the
satisfaction of other closing conditions, the
failure or delay of which may prevent or delay the
consummation of the acquisition.
regulatory approvals and
the BBH
On September 7, 2021, we announced that we
had entered into a definitive agreement with BBH to
acquire
Investor Services business,
including its custody, accounting, fund administration,
global markets and technology services for $3.5
billion in cash, subject to customary adjustments. The
transaction is subject to the receipt of regulatory
approvals and the satisfaction or waiver of other
closing conditions. The regulatory review is taking
longer than we initially anticipated. We cannot provide
any assurance
regulatory
approvals will be obtained, as to the timing of such
regulatory approvals, or that the challenging political
and regulatory environment will not make such
reviews longer and more uncertain, nor can we
provide any assurance that all of the other closing
conditions will be satisfied or waived. The failure to
obtain necessary regulatory approvals or the failure to
satisfy some or delay in obtaining, all of the other
that all necessary
required conditions could delay the completion of the
acquisition for a significant period of time, require it
to be modified, or prevent it from occurring.
Even if we successfully consummate our planned
acquisition of
Investor Services
business, we may fail to realize some or all of the
anticipated benefits of the transaction or the
benefits may take longer to realize than expected.
the BBH
Our ability to realize the anticipated benefits of
the planned acquisition will depend, to a large extent,
on our ability to integrate the BBH Investor Services
business into our business and realize anticipated
growth opportunities and cost synergies. The
integration of the BBH Investor Services business into
our business will be a complex, costly and time-
consuming process, is subject to delay or change,
and our management may face significant challenges
in implementing that integration, including, without
limitation, challenges related to:
•
•
•
retaining the business and revenue from the
BBH Investor Services business's current
clients, many of which have the right to
consent to transfer their business to State
to
Street or
another provider on short notice;
their business
transition
to
the BBH
integrating
Investor Services
business's software solutions, including its
Infomediary communication platform, with our
existing products and services and cross-
selling our comprehensive suite of products
and services, including State Street Alpha, to
Investor Services
clients of
business;
the BBH
achieving the anticipated cost and revenue
synergies from the combination of the BBH
Investor Services business with State Street;
• managing systems, operational and business
complexities and costs associated with
two different global securities
combining
including maintaining
servicing platforms,
service consistency,
information security,
business continuity and compliance, and
controlling operational risks associated with
large-scale technology conversions; and
•
the BBH
Investor Services
transitioning
business's senior management
team of
investment service partners into roles within
our larger company and retaining other key
employees of the BBH Investor Services
business.
Any delay or failure in achieving any of the
the
foregoing could materially adversely
expected benefits of the acquisition.
impact
State Street Corporation | 23
We are subject to intense competition in all
aspects of our business, which could negatively
affect our ability to maintain or increase our
profitability.
The markets in which we operate across all
facets of our business are both highly competitive and
global. These markets are changing as a result of
new and evolving laws and regulations applicable to
financial services
institutions. Regulatory-driven
market changes cannot always be anticipated, and
may adversely affect the demand for, and profitability
of, the products and services that we offer. In
addition, new market entrants and competitors may
address or influence changes in the markets more
rapidly than we do, may have materially greater
resources to invest in infrastructure and product
development than we do, or may provide clients with
a more attractive or cost-efficient offering of products
and services, adversely affecting our business. Our
to develop and market new products,
efforts
particularly in the “Fintech” sector including through
State Street Digital and State Street Alpha, may
position us
in new markets with pre-existing
competitors with strong market position. We have
also experienced, and anticipate that we will continue
to experience, significant pricing pressure in many of
our core businesses, particularly our custodial and
investment management services. This pricing
pressure has and may continue to impact our
revenue growth and operational margins and may
limit the positive impact of new client demand and
growth in AUC/A. Many of our businesses compete
with other domestic and international banks and
financial services companies, such as custody banks,
investment advisors, broker/dealers, outsourcing
companies, information providers, data analytics and
processing companies. Further consolidation within
the
industry could also pose
challenges to us in the markets we serve, including
potentially
increased downward pricing pressure
across our businesses.
financial services
Some of our competitors,
including our
competitors
in core services, have substantially
greater capital resources than we do, are not subject
regulatory
to as stringent capital or other
requirements as we are, or may not be as
constrained as we are by these requirements due to
the relative size of our balance sheet. In some of our
businesses, we are service providers to significant
competitors. These competitors are
in some
instances significant clients, and the retention of
these clients involves additional risks, such as the
avoidance of actual or perceived conflicts of interest
and the maintenance of high levels of service quality
and intra-company confidentiality. The ability of a
competitor to offer comparable or improved products
or services at a lower price would likely negatively
increase our
affect our ability
to maintain or
profitability. Many of our core services are subject to
contracts that have relatively short terms or may be
terminated by our client after a short notice period. In
addition, pricing pressures as a result of the activities
of competitors, client pricing reviews, and rebids, as
well as the introduction of new products, may result in
a reduction in the prices we can charge for our
products and services.
We are subject to variability in our assets under
custody and/or administration and assets under
management, and in our financial results, due to
the significant size of our relationship with many
of our institutional clients, and are also subject to
significant pricing pressure due to trends in the
market
the
considerable market influence exerted by those
clients.
custodial
services
and
for
to attract
Our clients include institutional investors, such
as mutual funds, collective investment funds, UCITS,
hedge funds and other investment pools, corporate
and public retirement plans, insurance companies,
foundations, endowments and investment managers.
In both our asset servicing and asset management
businesses, we endeavor
institutional
investors controlling large and diverse pools of
assets, as those clients typically have the opportunity
to benefit from the full range of our expertise and
service offerings. Due to the large pools of assets
controlled by these clients, the loss or gain of one
client, or even a portion of the assets controlled by
one client, or a client’s decision to in-source certain
services that we provide, could have a significant
effect on our AUC/A or our AUM, as applicable, in the
relevant period. Loss of all or a portion of the
servicing of a client's assets can occur for a variety of
reasons. For example, as a result of a decision to
diversify providers, one of our large asset servicing
clients has advised us it expects to move a significant
portion of its ETF assets currently with State Street to
one or more other providers, pending necessary
approvals. The transition is expected to begin in
2022, but will principally occur in 2023 and 2024. For
the year ended December 31, 2021, the fee revenue
associated with the transitioning assets represented
approximately 1.9% of our total fee revenue. Our
AUM or AUC/A are also affected by decisions by
favor or disfavor certain
institutional owners
investment instruments or categories. Similarly, if one
or more clients change the asset class in which a
significant portion of assets are invested (e.g., by
shifting investments from emerging markets to the
U.S.), those changes could have a significant effect
on our results of operations in the relevant period, as
our fee rates often change based on the type of asset
classes we are servicing or managing. As our fee
revenue is significantly impacted by our levels of
AUC/A and AUM, changes in levels of different asset
classes could have a corresponding significant effect
on our results of operations in the relevant period.
Large institutional clients also, by their nature, are
often able to exert considerable market influence, and
to
State Street Corporation | 24
this, combined with strong competitive forces in the
markets for our services, has resulted in, and may
continue to result in, significant pressure to reduce
the fees we charge for our services in both our asset
servicing and asset management lines of business.
Our strategy of focusing our efforts on the segments
of the market for investor services represented by
very large asset managers and asset owners causes
us to be particularly impacted by this industry trend.
Many of
large clients are also under
competitive and regulatory pressures that are driving
them to manage the expenses that they and their
investment products incur more aggressively, which
in turn exacerbates their pressures on our fees.
these
Development and completion of new products
and services, including State Street Digital or
State Street Alpha, may impose costs on us,
involve dependencies on third parties and may
expose us to increased operational and model
risk.
increased
Our financial performance depends, in part, on
our ability to develop and market new and innovative
services and to adopt or develop new technologies
that differentiate our products or provide cost
related
efficiencies, while avoiding
expenses. This dependency is exacerbated in the
current
financial
“FinTech” environment, where
institutions are investing significantly in evaluating
ledger
technologies, such as distributed
new
technology (“Blockchain"), and developing potentially
industry-changing products, services and standards.
For example, in 2018, we acquired CRD, and are
leveraging the capabilities acquired to create State
Street Alpha by combining with offerings from our
Investment Servicing business line. Similarly, in 2021,
we established State Street Digital to focus on the
development of digital assets and technologies. The
introduction of new products and services can require
significant time and resources, including regulatory
approvals and the development and implementation
of technical data management, control and model
validation requirements and effective security and
resiliency elements. New products and services, such
as State Street Digital and State Street Alpha, often
also involve dependencies on third parties to, among
other things, access innovative technologies, develop
new distribution channels or
form collaborative
product and service offerings, and can require
complex strategic alliances and
joint venture
relationships. Substantial risks and uncertainties are
associated with the introduction of new products and
services, strategic alliances and
joint ventures,
including rapid technological change in the industry,
our ability to access technical, data and other
information from our clients, significant and ongoing
investments required to bring new products and
services to market in a timely manner at competitive
prices, sharing of benefits in those relationships,
conflicts with existing business partners and clients,
protection of intellectual property, the competition for
employees with
the necessary expertise and
experience and sales and other materials that fully
and accurately describe the product or service and its
underlying risks and are compliant with applicable
regulations. New products or services may fail to
operate or perform as expected and may not be
suitable for the intended client or may not produce
anticipated efficiencies, savings or benefits for either
the client or us. Our failure to manage these risks and
uncertainties also exposes us to enhanced risk of
the
operational
recognition
liabilities.
Regulatory and internal control requirements, capital
requirements,
vendor
relationships and shifting market preferences may
also determine if such initiatives can be brought to
market in a manner that is timely and attractive to our
clients. Failure to successfully manage all of the
above risks in the development and implementation
of new products or services, including completion of
State Street Alpha, could have a material adverse
effect on our business and reputation, consolidated
results of operations or financial condition.
lapses, which may
financial
of
alternatives,
competitive
statement
result
in
Our business may be negatively affected by our
failure to update and maintain our technology
infrastructure.
certain
systems.
In order to maintain and grow our business, we
must make strategic decisions about our current and
future business plans and effectively execute upon
those plans. Strategic initiatives that we are currently
include cost
developing or executing against
initiatives, enhancements and efficiencies to our
operational processes, improvements to existing and
new service offerings, targeting for sales growth
certain segments of the markets for investor services
to
and asset management, and enhancements
information
existing and development of new
technology and other
Implementing
strategic programs and creating cost efficiencies
and
strategic,
involves
operational risks. Many features of our present
initiatives include investment in systems integration
and new technologies and also the development of
new, and the evolution of existing, methods and tools
to accelerate the pace of innovation, the introduction
of new services and enhancements to the resiliency
of our systems and operations. These initiatives also
may result in increased or unanticipated costs or
earnings volatility, may take longer than anticipated to
implement and may result in increases in operating
losses,
inadvertent data disclosures or other
operating errors. In implementing these programs, we
may have material dependencies on third parties. The
transition to new operating processes and technology
infrastructure may also cause disruptions in our
relationships with clients and employees or loss of
institutional understanding and may present other
technological
State Street Corporation | 25
unanticipated technical or operational hurdles. In
addition, the relocation to or expansion of servicing
activities and other operations in different geographic
regions or vendors may entail client, regulatory and
other third party data use, storage and security
challenges, as well as other regulatory compliance,
business continuity and other considerations. As a
result, we may not achieve some or all of the
anticipated cost savings or other benefits and may
experience unanticipated challenges from clients,
regulators or other parties or reputational harm. In
addition, some systems development initiatives may
not have access
resources or
management attention and, consequently, may be
delayed or unsuccessful. Many of our systems
require enhancements to meet the requirements of
evolving
to enhance security and
resiliency and decommission obsolete technologies,
to permit us to optimize our use of capital or to reduce
the
the
implementation of our State Street Alpha platform and
integration of CRD requires substantial systems
development and expense. We may not have the
resources
these objectives
simultaneously.
risk of operating error.
to pursue all of
to significant
In addition,
regulation,
The COVID-19 pandemic continues to create
significant
for our
risks and uncertainties
business.
to
The extent to which the COVID-19 pandemic
continues
results of
impact our business,
operations, and financial condition, as well as our
liquidity ratios and other
regulatory capital and
regulatory requirements in the United States and
internationally, will depend on future developments,
which are highly uncertain and cannot be predicted,
including the scope and duration of the pandemic, the
effectiveness of our work from home arrangements
and staffing levels in operational facilities, challenges
associated with our return to office plans such as
maintaining a safe office environment and integrating
and engaging at-home and in-office staff, the impact
of market participants on which we rely, actions taken
by governmental authorities and other third parties in
response to the pandemic and the impact of equity
sales and
market
implementation cycles for some clients on our service
and management fee revenue.
valuations and extended
impacts
While global economic pressures related to the
COVID-19 pandemic have moderated, the pandemic
continues to create economic uncertainty which may
the global
future
lead
to negative
economy, cause
in equity market
fluctuations
valuations, decrease liquidity in fixed income markets,
or create volatility and disruption in financial markets.
Any such impacts may lead to renewed outsized
demands on our transaction processing capabilities in
our asset servicing business and volatility in our
asset management
and
foreign
businesses. New market and economic uncertainty
exchange
to
restrictive
increasingly
risks associated with our and
could also increase the risks inherent in our activities
as a credit provider to investment pools and other
institutional investors and cause us to increase our
provision for credit losses. In addition, our and other
market participants’ reliance upon work from home
capabilities in light of the pandemic, and the potential
inability to maintain critical staff in our operational
facilities, including facilities in the United States, the
United Kingdom, Germany, China, India and Poland,
local
present
infrastructure,
local
regulations, illness, quarantine, the sustainability of a
work from home environment and increased risk of
cybersecurity attacks. Any material or extended
disruption of our ability to deliver services or meet our
responsibilities in the settlement of securities or other
market activities is likely to result in operating losses,
loss of revenue or penalties under our service
contracts which may have a material adverse impact
on our results of operation and financial condition.
New pressures on the global economy are also
arising from ongoing disruptions to global supply
chains and material shifts in employment trends and
may drive negative impacts on our business. In
particular, trends related to staff retention have
talent
created
management. Our success depends, in large part, on
our ability to attract and retain key people. The
unintended loss of services of key personnel and
other staff could have a material adverse impact on
our business because of loss of skills, knowledge of
our markets, operations and clients, years of industry
experience, sufficient talent to meet client demand
and growth and the difficulty of replacing talent in the
current market conditions. In addition, as we have
moved business into emerging markets (e.g., China,
India, and Poland), increased turnover and salary
competition in these locations may lead to heightened
risk and costs.
heightened
concerns
around
Acquisitions, strategic alliances, joint ventures
and divestitures pose risks for our business.
As part of our business strategy, we acquire
complementary businesses and technologies, enter
into strategic alliances and joint ventures and divest
portions of our business. We undertake transactions
of varying sizes to, among other reasons, expand our
geographic footprint, access new clients, distribution
channels, technologies or services, develop closer or
more collaborative relationships with our business
partners, efficiently deploy capital or leverage cost
savings or other business or financial opportunities.
We may not achieve the expected benefits of these
transactions, which could result in increased costs,
lowered revenues, ineffective deployment of capital,
regulatory concerns, exit costs or diminished
competitive position or reputation.
Transactions of
this nature also
involve a
number of risks and
tax,
regulatory, strategic, managerial, operational, cultural
and employment challenges, which could adversely
financial, accounting,
State Street Corporation | 26
affect our consolidated results of operations and
financial condition. For example, the businesses that
we acquire or our strategic alliances or joint ventures
may under-perform relative to the price paid or the
resources committed by us; we may not achieve
anticipated revenue growth or cost savings; or we
may otherwise be adversely affected by acquisition-
related charges. The intellectual property of an
acquired business may be an important component of
the value that we agree to pay for it. However, such
acquisitions are subject to the risks that the acquired
business may not own the intellectual property that
we believe we are acquiring, that the intellectual
property is dependent on licenses from third parties,
that the acquired business infringes on the intellectual
property rights of others, that the technology does not
have the acceptance in the marketplace that we
anticipated or that the technology requires significant
investment to remain competitive. Similarly, such
acquisitions present risks on our ability to retain the
acquired talent, which may be essential to achieve
our objectives in the acquisition. The integration of an
acquired
technology
infrastructure into ours has in the past and may in the
future also expose us to additional security and
resiliency risks. Further, past acquisitions have
resulted in the recognition of goodwill and other
significant
in our consolidated
statement of condition. For example, we recorded
goodwill and intangible assets of approximately $2.46
billion associated with our acquisition of CRD in 2018.
These assets are not eligible
in
regulatory capital under applicable requirements. In
addition, we may be required to record impairment in
our consolidated statement of
future
periods if we determine that the value of these assets
has declined.
intangible assets
information
business's
inclusion
income
for
in
risks
Through our acquisitions or joint ventures, we
may also assume unknown or undisclosed business,
operational, tax, regulatory and other liabilities, fail to
liabilities or
properly assess known contingent
assume businesses with internal control deficiencies.
While in most of our transactions we seek to mitigate
these
things, due
through, among other
diligence, indemnification provisions or insurance,
these or other risk-mitigating provisions we put in
place may not be sufficient to address these liabilities
and contingencies and involve credit and execution
risks associated with successfully seeking recourse
from a third party, such as the seller or an insurance
provider. Other major financial services firms have
paid significant penalties
to resolve government
investigations into matters conducted in significant
part by acquired entities.
Various regulatory approvals or consents, formal
or informal, are generally required prior to closing of
these transactions, which may include approvals,
non-objections or regulatory exceptions from the
the
Federal Reserve and other domestic and non-U.S.
regulatory authorities. These regulatory authorities
may impose conditions on the completion of the
acquisition or require changes to its terms that
materially affect the terms of the transaction or our
ability to capture some of the opportunities presented
by
the
transaction. Any such conditions, or any associated
regulatory delays, could limit the benefits of the
transaction. Acquisitions or
joint ventures we
announce may not be completed if we do not receive
regulatory
regulatory approvals,
the
approvals are significantly delayed or if other closing
conditions are not satisfied.
transaction, or may not approve
required
if
and
integration
The
and
development of the benefits of our acquisitions
result
to our business and other
uncertainties.
retention
in risks
the
In recent years, we have undertaken several
acquisitions, including our 2018 acquisition of CRD
and our 2016 acquisition of the General Electric Asset
Management business. Our planned acquisition of
the BBH Investors Services business is pending
regulatory review. The integration of acquisitions
presents risks that differ from the risks associated
with our ongoing operations. Integration activities are
complicated and time consuming and can involve
significant unforeseen costs. We may not be able to
effectively assimilate services,
technologies, key
personnel or businesses of acquired companies into
our business or service offerings as anticipated, and
we may not achieve related revenue growth or cost
savings. We also face the risk of being unable to
retain, or cross-sell our products or services to, the
clients of acquired companies or joint ventures and
the risk of being unable to cross-sell acquired
In
products or services
particular, some clients, including significant clients,
of an acquired business may have the right to
transition their business to other providers on short
notice for convenience, fiduciary or other reasons and
may take the opportunity of the acquisition or market,
commercial, relationship, service satisfaction or other
developments following the acquisition to terminate,
reduce or renegotiate the fees or other terms of our
relationship. Any such client losses, reductions or
renegotiations likely will reduce the expected benefits
of the acquisition, including revenues, cross-selling
opportunities and market share, cause impairment to
goodwill and other intangibles or result in reputational
harm, which effects could be material, and we may
not have recourse against the seller of the business
or the client. The risk of client loss is even greater
where the client is a competitor of ours. Acquisitions
of technology firms can involve extensive information
technology
risk of
defects, security breaches and resiliency lapses and
product enhancement and development activities, the
integration, with associated
to our existing clients.
State Street Corporation | 27
costs of which can be difficult to estimate, as well as
heightened cultural and compliance concerns in
integrating an unregulated firm into a bank regulatory
environment. Acquisitions of Investment Servicing
businesses entail information technology systems
conversions, which involve operational risks, as well
as fiduciary and other risks associated with client
retention. Acquisitions of Asset Management
businesses similarly involve fiduciary and similar risks
associated with client retention, distribution channels
and additional servicing opportunities. Joint ventures
involve all of these risks, as well as risks associated
with shared control and decision-making (even in
majority-owned situations), minority rights and exit
rights, which can delay, challenge or
foreclose
execution on material opportunities or initiatives,
create
limit divestment
risks and
opportunities.
regulatory
With any acquisition, the integration of the
operations and resources of the businesses could
result in the loss of key employees, the disruption of
our and the acquired company's ongoing businesses
or inconsistencies in standards, controls, procedures
or policies that could adversely affect our ability to
maintain relationships with clients, business partners
or employees, maintain regulatory compliance or
achieve the anticipated benefits of the acquisition.
Integration efforts may also divert management
attention and resources.
Competition
for qualified members of our
workforce is intense, and we may not be able to
attract and retain the personnel we need to
support our business.
Our success depends, in large part, on our
ability
to attract and retain qualified personnel.
Competition for labor in most activities in which we
engage can be intense, including for both individuals
identified as key talent and for other personnel. We
may not be able to hire people or retain them,
particularly in light of challenges associated with
compensation restrictions applicable, or which may
become applicable,
to banks and some asset
managers and that are not applicable to other
financial services firms in all jurisdictions or to
technology or other firms with which we compete for
personnel, generally. This can be particularly
constraining when competing for skill sets which are
in high demand, such as technology and information
loss of services of
security. The unexpected
functions,
in business units, control
personnel
information technology, operations or other areas
could have a material adverse
impact on our
business and operations because of the loss of skills,
knowledge of our markets, operations and clients,
years of industry experience and, in some cases, the
difficulty of promptly finding qualified replacement
personnel. These adverse
impacts may be
exacerbated by increased costs and expenses driven
by the current competitive labor market particularly
with regard to the ability to meet compensation
expectations, elevated inflationary pressures and
increased costs associated with attracting, retaining
and engaging personnel. In addition, the loss of
personnel, either individually or as a group, could
adversely affect our clients' perception of our ability to
continue to manage certain types of investment
management or servicing mandates to provide other
services to them or to maintain a culture of innovation
and proficiency.
Financial Market Risks
Geopolitical and economic conditions and
affect us,
developments
particularly if we face increased uncertainty and
unpredictability in managing our businesses.
adversely
could
financial markets can suffer
volatility,
from
Global
illiquidity and disruption,
substantial
particularly as a result of geopolitical disruptions,
slower economic growth and a shifting monetary
policy stance from key central banks. If such volatility,
illiquidity or disruption were to result in an adverse
economic environment in the U.S. or internationally or
result in a lack of confidence in the financial stability
of major developed or emerging markets, such
developments could have an adverse effect on our
business, as well as the businesses of our clients and
our significant counterparties, and could also increase
the difficulty and unpredictability of aligning our
infrastructure and our
business strategies, our
operating costs in light of uncertain market and
economic
could be
compounded by tighter monetary policy conditions,
disruptions to free trade and political uncertainty in
the U.S. and internationally.
conditions. These
risks
Market disruptions can adversely affect our
consolidated results of operations if the value of our
AUC/A or AUM decline, while the costs of providing
the related services remain constant or increase.
They may also result in investor preference trends
towards asset classes and markets deemed more
secure, such as cash or non-emerging markets, with
respect to which our fee rates are often lower. These
factors could reduce the profitability of our asset-
based fee revenue and could also adversely affect
our transaction-based revenue, such as revenues
foreign exchange
from securities
activities, and the volume of transactions that we
execute for or with our clients. Further, the degree of
volatility in foreign exchange rates can affect our
In general,
foreign exchange
increased currency volatility tends to increase our
market risk but also increases our opportunity to
generate
foreign exchange revenue. Conversely,
periods of lower currency volatility tend to decrease
our market risk but also decrease our
foreign
exchange revenue.
finance and
revenue.
trading
In addition, as our business grows globally and a
significant percentage of our revenue is earned (and
of our expenses paid) in currencies other than U.S.
State Street Corporation | 28
dollars, our exposure to foreign currency volatility
could affect our levels of consolidated revenue, our
consolidated expenses and our consolidated results
of operations, as well as the value of our investment
in our non-U.S. operations and our non-U.S.
investment portfolio holdings. The extent to which
changes in the strength of the U.S. dollar relative to
other currencies affect our consolidated results of
operations,
the degree of any offset
between increases or decreases to both revenue and
expenses, will depend upon the nature and scope of
relevant
our operations and activities
jurisdictions during the relevant periods, which may
vary from period to period.
including
the
in
As our product offerings expand, in part as we
seek to take advantage of perceived opportunities
arising under various regulatory reforms and resulting
market changes, the degree of our exposure to
various market and credit risks will evolve, potentially
resulting in greater revenue volatility.
Our businesses have significant
International
operations, and disruptions in European and
Asian economies could have an adverse effect on
our consolidated results of operations or financial
condition.
Economic conditions across the world face
continued uncertainty due to among other things,
COVID-19 pandemic fluctuations, global supply chain
challenges, employment pressures
in services
sectors, increased geopolitical risk in Ukraine, and
heightened volatility
in key emerging market
economies. New or continued economic deterioration
sovereign debt
renew
will
sustainability,
financial
institutions and sovereigns, and political and other
risks, particularly as many global central banks begin
to withdraw stimulus measures deployed during the
peak of
implement
the COVID-19 pandemic or
differing monetary policy. Continued uncertainty in the
external environment has led to increased concern
around
for
economic progress in the regions in which we
operate, including Europe and Asia.
concerns about
interdependencies among
to medium-term outlook
the near-
impacts
the U.K. and E.U. and
for market access
In addition, uncertainty around implications of
the United Kingdom's exit from the E.U., known as
Brexit, and related developments, present risks which
include potential negative
to economic
activity or to cooperation in the future relationship
the resulting
between
financial
for
consequences
services.
to anticipated
restrictions on activity between the E.U. and the U.K.
following Brexit, we have developed and implemented
to maintain our servicing and
that seek
plans
operational capabilities,
in all material respects,
independent of the final outcome. There can be no
assurance, however, that our plans will address
in part, all potential
effectively,
contingencies associated with Brexit or that we may
in whole or
to conform
In order
not experience additional costs or
inefficiencies
associated with our European activities or client
dissatisfaction, delays
regulatory
in
in executing our
approvals or other difficulties
regional strategy.
receiving
Given the scope of our International operations,
economic or market uncertainty, volatility, illiquidity or
disruption resulting from these and related factors
impact on our
could have a material adverse
consolidated
financial
condition.
results of operations or
Our investment securities portfolio, consolidated
financial condition and consolidated results of
operations could be adversely affected by
changes in market factors, including interest
rates, credit spreads and credit performance.
remain
Our investment securities portfolio represented
approximately 37% of our
total assets as of
December 31, 2021. The gross interest income
associated with our investment portfolio represented
approximately 10% of our total gross revenue for the
year ended December 31, 2021 and has represented
as much as 31% of our total gross revenue in the
fiscal years since 2007. As such, our consolidated
financial condition and results of operations are
materially exposed to the risks associated with our
investment portfolio, including changes in interest
rates, credit spreads, credit performance (including
risk of default), credit ratings, our access to liquidity,
foreign exchange markets and mark-
to-market
valuations, and our ability to profitably manage
changes in repayment rates of principal with respect
to our portfolio securities. The low interest rate
environment that has persisted since the financial
crisis began in mid-2007 limits our ability to achieve a
NIM consistent with our prior historical averages.
Despite market expectations for higher interest rates,
volatility. Managing
further
risks
reinvestment for both higher and lower rate outcomes
will continue to be a challenge. To the extent the
Federal Reserve engages in quantitative tightening
activities, the market effects and the associated
challenges in managing our investment portfolio,
consolidated financial condition and consolidated
results of operations, including our capital ratios and
share repurchase program, may differ from or be
exacerbated by the effects of changes in interest
rates and also may be volatile and difficult to predict,
presenting even
In addition,
certain regulatory liquidity standards, such as the
LCR, require that we maintain minimum levels of
HQLA in our investment portfolio, which generally
generate lower rates of return than other investment
assets. This has resulted in increased levels of HQLA
as a percentage of our investment portfolio and an
associated negative impact on our NII and our NIM.
As a result we may not be able to attain our prior
historical levels of NII and NIM. For additional
information regarding these liquidity requirements,
refer to the “Liquidity Coverage Ratio and Net Stable
“Supervision and
Funding Ratio” section of
further challenges.
for
State Street Corporation | 29
Regulation” in Business in this Form 10-K. We may
enter into derivative transactions to hedge or manage
our exposure to interest rate risk, as well as other
risks, such as foreign exchange risk and credit risk.
Derivative instruments that we hold for these or other
purposes may not achieve their intended results and
could result in unexpected losses or stresses on our
liquidity or capital resources.
regulatory
Our investment securities portfolio represents a
greater proportion of our consolidated statement of
condition and our loan portfolio represents a smaller
proportion (approximately 10% of our total assets as
of December 31, 2021), in comparison to many other
major financial institutions. In some respects, the
accounting and
treatment of our
investment securities portfolio may be less favorable
to us than a more traditional held-for-investment
lending portfolio. For example, under the Basel III
rule, after-tax changes in the fair value of AFS
investment securities, such as those which represent
a majority of our investment portfolio, are included in
Tier 1 capital. Since loans held for investment are not
subject to a fair value accounting framework, changes
in the fair value of loans (other than expected credit
losses) are not similarly included in the determination
of Tier 1 capital under the Basel III rule. Due to this
differing treatment, we may experience increased
variability in our Tier 1 capital relative to other major
financial institutions whose loan-and-lease portfolios
represent a larger proportion of their consolidated
total assets than ours.
Additional risks associated with our investment
portfolio include:
•
•
•
hold
classes
Asset class concentration. Our investment
to have significant
portfolio continues
concentrations
of
several
in
securities, including agency residential MBS,
commercial MBS and other ABS, and
securities with concentrated exposure
to
consumers. These classes and types of
liquidity,
securities experienced significant
valuation and credit quality deterioration
during the financial crisis that began in
mid-2007. We
non-U.S.
also
government securities, non-U.S. MBS and
ABS with exposures to European countries,
whose
have
sovereign-debt markets
experienced increased stress at times since
2011 and may continue to experience stress
in the future. For further information, refer to
the risk factor titled “Our businesses have
significant
and
disruptions in European economies could
have an adverse effect on our consolidated
results of operations or financial condition".
Further, we hold a portfolio of U.S. state and
municipal bonds, the value of which may be
affected by the budget deficits that a number
operations,
European
of states and municipalities currently face,
resulting in risks associated with this portfolio.
our
changes
deteriorate,
Effects of market conditions.
If market
investment
conditions
portfolio could experience a decline in market
value, whether due to a decline in liquidity or
an increase in the yield required by investors
to hold such securities, regardless of our
credit view of our portfolio holdings.
In
addition, in general, deterioration in credit
quality, or
in management's
expectations regarding repayment timing or
in management's investment intent to hold
securities to maturity, in each case with
respect to our portfolio holdings, could result
in recognition of an allowance for expected
credit losses or in impairment. Similarly, if a
material portion of our investment portfolio
were to experience credit deterioration, our
capital ratios as calculated pursuant to the
Basel III rule could be adversely affected.
This
is greater with portfolios of
investment securities that contain credit risk
than with holdings of U.S. Treasury
securities.
risk
Effects of interest rates. Our investment
portfolio is further subject to changes in both
in Europe)
U.S. and non-U.S. (primarily
interest
rates, and could be negatively
affected by changes in those rates, whether
or not expected. This is particularly true in the
case of a quicker-than-anticipated increase in
interest rates, which would decrease market
values in the near-term, or monetary policy
that results in persistently low or negative
rates of interest on certain investments. The
latter has been the case, for example, with
respect to ECB monetary policy, including
negative interest rates in some jurisdictions,
with associated negative effects on our
investment portfolio reinvestment, NII and
NIM. The effect on our NII has been
exacerbated by the effects in recent fiscal
years of the strong U.S. dollar relative to
other currencies, particularly the Euro. If
European
low or
decrease and the U.S. dollar strengthens
relative to the Euro, the negative effects on
our NII likely will continue or increase. The
overall level of NII can also be impacted by
the size of our deposit base, as further
increases in interest rates could lead to
reduced deposit levels and also lower overall
NII. Further, a reduction in deposit levels
could increase the requirements under the
regulatory liquidity standards requiring us to
invest a greater proportion of our investment
portfolio holdings in HQLA that have lower
interest
remain
rates
State Street Corporation | 30
yields than other investable assets. See also,
“Our business activities expose us to interest
rate risk” in this section.
Our business activities expose us to interest rate
risk.
factors
liabilities. These
In our business activities, we assume interest
rate risk by investing short-term deposits received
from our clients in our investment portfolio of longer-
and intermediate-term assets. Our NII and NIM are
affected by among other things, the levels of interest
rates in global markets, changes in the relationship
between short- and long-term interest rates, the
direction and speed of interest rate changes and the
asset and liability spreads relative to the currency and
geographic mix of our interest-earning assets and
interest-bearing
are
influenced, among other things, by a variety of
economic and market
forces and expectations,
including monetary policy and other activities of
central banks, such as the Federal Reserve and ECB,
that we do not control. Our ability to anticipate
changes in these factors or to hedge the related on-
and off-balance sheet exposures, and the cost of any
such hedging activity, can significantly influence the
success of our asset-and-liability management
activities and the resulting level of our NII and NIM.
The impact of changes in interest rates and related
factors will depend on the relative duration and fixed-
or floating-rate nature of our assets and liabilities.
Sustained lower interest rates, a flat or inverted yield
curve and narrow credit spreads generally have a
constraining effect on our NII. In addition, our ability
to change deposit rates in response to changes in
interest rates and other market and related factors is
limited by client relationship considerations. The
impact of interest rates on our investment portfolio
and
including
financial
accumulated other comprehensive income, can also
affect our ability to maintain our capital ratios within
our target ranges as well as the amount and timing of
our
repurchases. For additional
information about the effects on interest rates on our
business, refer to the Market Risk Management
section, "Asset-and-Liability Management Activities"
in our Management's Discussion and Analysis in this
Form 10-K.
future share
consolidated
results,
risk
credit
assume
significant
to
We
counterparties, many of which are major financial
institutions. These financial institutions and other
counterparties may also have substantial
financial dependencies with other
financial
institutions and sovereign entities. These credit
exposures and concentrations could expose us to
financial loss.
The financial markets are characterized by
interdependencies among numerous
extensive
parties,
including banks, central banks, broker/
dealers, insurance companies and other financial
institutions. These financial institutions also include
collective investment funds, such as mutual funds,
funds
financial
that share
these
UCITS and hedge
interdependencies. Many
institutions,
including collective investment funds, also hold, or
are exposed to, loans, sovereign debt, fixed-income
securities, derivatives, counterparty and other forms
of credit risk in amounts that are material to their
financial condition. As a result of our own business
practices and these interdependencies, we and many
of our clients have concentrated counterparty
exposure to other financial institutions and collective
investment funds, particularly large and complex
institutions, sovereign issuers, mutual funds, UCITS
and hedge funds. Although we have procedures for
monitoring
aggregate
individual
counterparty risk, significant individual and aggregate
counterparty exposure is inherent in our business, as
our focus is on servicing large institutional investors.
both
and
group
counterparty
In the normal course of our business, we
assume concentrated credit risk at the individual
level. Such
or
obligor,
concentrations may be material. Our material
counterparty exposures change daily, and
the
counterparties or groups of related counterparties to
which our risk exposure is concentrated are also
variable during any reported period; our largest
exposures tend to be to other financial institutions.
of
counterparty
Concentration
exposure
presents significant risks to us and to our clients
because the failure or perceived weakness of our
counterparties (or in some cases of our clients'
counterparties) has the potential to expose us to risk
of financial loss. Changes in market perception of the
financial strength of particular financial institutions or
sovereign issuers can occur rapidly, are often based
on a variety of factors and are difficult to predict.
to
financial
factors contributed
This was observed during the financial crisis that
in 2007-2008, when economic, market,
began
the
political and other
perception of many
institutions and
sovereign issuers as being less credit worthy. This led
to credit downgrades of numerous large U.S. and
non-U.S. financial institutions and several sovereign
issuers (which exposure stressed
the perceived
creditworthiness of financial institutions, many of
which invest in, accept collateral in the form of, or
value other transactions based on the debt or other
securities issued by sovereigns) and substantially
reduced value and liquidity in the market for their
credit instruments. These or other factors could
again contribute to similar consequences or other
market risks associated with reduced
levels of
liquidity. As a result, we may be exposed to increased
counterparty risks, either resulting from our role as
principal or because of commitments we make in our
capacity as agent for some of our clients.
State Street Corporation | 31
Additional areas where we experience exposure
to credit risk include:
•
•
•
tends
investors
Short-term credit: The degree of client
to
for short-term credit
demand
increase during periods of market turbulence,
which may expose us to further counterparty-
related risks. For example,
in
collective investment vehicles for which we
act as a custodian may experience significant
redemption activity due to adverse market or
economic news. Our relationship with our
clients and the nature of the settlement
process for some types of payments may
result in the extension of short-term credit in
such circumstances. We also provide
committed lines of credit to support such
activity. For some types of clients, we provide
credit
their
portfolios, which may expose us to potential
loss if the client experiences investment
losses or other credit difficulties.
to allow
leverage
them
to
These
Industry and country risks: In addition to our
exposure to financial institutions, we are from
time to time exposed to concentrated credit
risk at an industry or country level. This
concentration risk also applies to groups of
unrelated counterparties
that may have
similar investment strategies involving one or
more particular industries, regions, or other
characteristics.
unrelated
counterparties may concurrently experience
adverse effects to their performance, liquidity
or reputation due to events or other factors
affecting such investment strategies. Though
potentially not material individually (relative to
any one such counterparty), our credit
exposures to such a group of counterparties
could expose us to a single market or political
event or a correlated set of events that, in the
aggregate, could have a material adverse
impact on our business.
Subcustodian risks: Our use of unaffiliated
subcustodians exposes us to credit risk, in
addition to other risks, such as operational
risk, dependencies on credit extensions and
risks of the legal systems of the jurisdictions
in which the subcustodians operate, each of
which may be material. Our operating model
to risk of unaffiliated sub-
exposes us
custodians to a degree greater than some of
our competitors who have banking operations
in more jurisdictions than we do. Our sub-
custodians operate in all jurisdictions in which
our clients invest, including emerging and
other underdeveloped markets that entail
heightened risks. These risks are amplified
due to evolving regulatory requirements with
respect to our financial exposures in the
event those subcustodians are unable to
return clients’ assets, including, in some
regulatory regimes, such as the E.U.'s UCITS
that we be
requirements
V directive,
responsible for resulting losses suffered by
our clients. We may agree to similar or more
stringent standards with clients that are not
regulations. Our
subject
subcustodians are also large, global financial
institutions with whom we have other credit
exposures. This credit exposure to these
financial institutions or subcustodians may
limit the financial relationship we may have
with these counterparties.
such
to
•
•
losses
risks: We are exposed
Settlement
to
settlement risks, particularly in our payments
and
foreign exchange activities. Those
activities may lead to extension of credit and
consequent
the event of a
in
counterparty breach or an operational error,
including the failure to provide credit. Due to
our membership in several industry clearing
or settlement exchanges, we may be required
to guarantee obligations and liabilities, or
provide financial support, in the event that
other members do not honor their obligations
or default. Moreover, not all of our
counterparty exposure is secured, and even
when our exposure is secured, the realizable
value of the collateral may have declined by
the time we exercise our rights against that
collateral. This risk may be particularly acute
if we are required to sell the collateral into an
illiquid or temporarily-impaired market or with
respect to clients protected by sovereign
immunity. We are exposed to risk of short-
term credit or overdraft of our clients in
facilitate
connection with
settlement of
foreign
exchange
particularly when
contractual settlement has been agreed with
our clients. The occurrence of overdrafts at
peak volatility could create significant credit
exposure to our clients depending upon the
value of such clients' collateral at the time.
trades and related
the process
activities,
to
to
Securities lending and repurchase agreement
indemnification: On behalf of clients enrolled
in our securities lending program, we lend
securities to banks, broker/dealers and other
institutions. In the event of a failure of the
borrower
return such securities, we
typically agree to indemnify our clients for the
amount by which the fair market value of
those securities exceeds the proceeds of the
disposition of the collateral posted by the
borrower in connection with such transaction.
lend and borrow securities as
We also
riskless principal, and in connection with
State Street Corporation | 32
from
those transactions receive a security interest
in securities held by the borrowers in their
securities portfolios and advance cash or
securities as collateral to securities lenders.
Borrowers are generally required to provide
collateral equal to a contractually agreed
percentage equal to or in excess of the fair
market value of the loaned securities. As the
fair market value of the loaned securities or
collateral changes, additional collateral is
provided by the borrower or collateral is
returned to the borrower. In addition, our
lending clients often
agency securities
purchase securities or other
financial
instruments
financial counterparties,
including broker/dealers, under repurchase
arrangements, frequently as a method of
reinvesting the cash collateral they receive
from lending their securities. Under these
arrangements, the counterparty is obligated
to repurchase these securities or financial
instruments from the client at the same price
(plus an agreed rate of return) at some point
in the future. The value of the collateral is
the counterparty's
intended
payment obligation, and collateral is adjusted
daily to account for shortfall under, or excess
over, the agreed-upon collateralization level.
As with the securities lending program, we
agree to indemnify our clients from any loss
that would arise on a default by
the
repurchase
counterparty
the
arrangements
disposition of the securities or other financial
assets held as collateral are less than the
amount of the repayment obligation by the
client's counterparty. In such instances of
counterparty default,
for both securities
lending and repurchase agreements, we,
rather than our client, are exposed to the
risks associated with collateral value.
the proceeds
under
if
to exceed
these
from
•
Repurchase and resale transactions: We
enter into repurchase and resale transactions
in eligible securities with sponsored clients
and with other FICC members and, pursuant
to FICC Government Securities Division
rules, submit, novate and net the transactions
when specific netting criteria are met. We
may sponsor clients to clear their eligible
repurchase transactions with FICC, backed
by our guarantee to FICC of the prompt and
full payment and performance of our
sponsored member
respective
obligations. Although we obtain a security
interest from our sponsored clients in the
collateral that they receive, we are exposed
to the associated risks, including insufficiency
of the value of collateral.
clients’
•
•
•
•
•
Stable value arrangements: We enter into
stable value wrap derivative contracts with
unaffiliated stable value funds that allow a
stable value fund to provide book value
coverage to its participants. During the 2008
financial crisis, the book value of obligations
under many of these contracts exceeded the
the underlying portfolio
market value of
holdings. Concerns regarding the portfolio of
investments protected by such contracts, or
regarding
manager
overseeing such an investment option, may
result in redemption demands from stable
value products covered by benefit-responsive
contracts at a time when the portfolio's
market value is less than its book value,
potentially exposing us to risk of loss.
investment
the
Private equity subscription
finance credit
facilities: We provide credit facilities to private
equity funds. The portfolio consists of capital
call lines of credit, the repayment of which is
dependent on the receipt of capital calls from
the underlying limited partner investors in the
funds managed by these firms.
U.S. municipal obligations remarketing credit
facilities: We provide credit
in
connection with
the remarketing of U.S.
municipal obligations, potentially exposing us
to credit exposure
the municipalities
to
issuing such bonds and contingent liquidity
risk.
facilities
in
Leveraged loans: we invest in leveraged
loans, both in the U.S. and in Europe. We
invest in these loans to non-investment grade
borrowers
loan
through participation
syndications in the non-investment grade
lending market. We rate these loans as
"speculative" under our internal risk-rating
framework, and these loans have significant
exposure to credit losses relative to higher-
rated loans. We are therefore at a higher risk
of default with respect to these investments
relative to other of our investments activities.
In addition, unlike other financial institutions
that may have an active role in managing
individual loan compliance, our investment in
these loans is generally as a passive investor
with limited control. As this portfolio becomes
more seasoned, our allowance for credit
losses related to these loans may increase
through additional provisions
for credit
losses.
real estate: We
finance
Commercial
commercial and multi-family properties, which
serve as collateral for our loans. Although
collateralized,
loans may become
under-secured if the value of the collateral
was over-estimated or changes. Loan
these
State Street Corporation | 33
•
payments are dependent on the successful
operation and management of the underlying
collateral property to generate sufficient cash
flow to repay the loan in a timely fashion. A
material decline in real estate markets or
economic conditions could negatively impact
value or property performance, which could
loan repayment,
timely
adversely
which may result in increased provision for
credit losses on loans, and actual losses,
either of which would have an adverse impact
on our net income.
impact
Unavailability of netting: We are generally not
able to net exposures across counterparties
that are affiliated entities and may not be able
in all circumstances to net exposures to the
same legal entity across multiple products. As
a consequence, we may incur a loss in
relation to one entity or product even though
our exposure to an entity's affiliates or across
product types is over-collateralized. In some
cases, for example in our securities finance
and foreign exchange activities, we are able
to enter into netting agreements that allow us
to net offsetting exposures and payment
obligations against one another. In the event
we become unable, due
to operational
constraints, actions by regulators, changes in
accounting principles, law or regulation (or
related interpretations) or other factors, to net
some or all of our offsetting exposures and
payment
those
agreements, we would be required to gross
up our assets and liabilities on our statement
of condition and our calculation of RWA,
accordingly. This would result in a potentially
adverse impact on our regulatory ratios,
including LCR, and present increased credit,
liquidity, asset-and-liability management and
operational risks, some of which could be
material.
obligations
under
of
including
counterparties,
Under currently prevailing regulatory restrictions
on credit exposure, we are required to limit our
exposures to specific issuers or counterparties or
financial
groups
institutions and sovereign
issuers. These credit
exposure restrictions have and may further adversely
affect certain of our businesses, may require that we
expand our credit exposure to a broader range of
issuers and counterparties, including issuers and
counterparties that represent increased credit risk,
may reduce or foreclose our ability to enter into
advantageous transactions or ventures with particular
counterparties and may require that we modify our
operating models or the policies and practices we use
to manage our consolidated statement of condition.
The effects of these considerations may increase
when evaluated under a stressed environment in
stress testing, including CCAR. In addition, we are an
adherent to the International Swaps and Derivatives
Association 2015 Universal Resolution Stay Protocol
and as such are subject to restrictions against the
fellow
exercise of rights and remedies against
adherents, including other major financial institutions,
in the event they or an affiliate of theirs enters into
resolution. Although our overall business is subject to
these factors, several of our activities are particularly
sensitive to them including our currency trading
business and our securities finance business. For a
discussion of regulatory requirements applicable to
our counterparty exposures, see “Item 1. Business-
Supervision and Regulation - Enhanced Prudential
Standards".
Given
strong
counterparties in the current market, we are not able
to mitigate all of our and our clients' counterparty
credit risk.
number
limited
the
of
Fee revenue represents a significant majority of
our consolidated revenue and
is subject to
decline, among other things, in the event of a
reduction in, or changes to, the level or type of
investment activity by our clients.
We rely primarily on fee-based services to derive
our revenue. This contrasts with commercial banks
that may rely more heavily on interest-based sources
of revenue, such as loans. During 2021, total fee
revenue represented approximately 83% of our total
revenue. Fee revenue generated by our Investment
Servicing and Investment Management businesses is
augmented by foreign exchange trading services,
securities finance and software and processing fee
revenue. The level of these fees is influenced by
several factors, including the mix and volume of our
AUC/A and our AUM, the value and type of securities
positions held (with respect to AUC/A) and the
volume of our clients' portfolio transactions, and the
types of products and services used by our clients.
Our
fee revenue would be negatively affected,
potentially materially, by a decline in the market value
of client portfolios resulting from a broad market
correction, especially in equity markets.
include
In addition, our clients
institutional
investors, such as mutual funds, collective investment
funds, UCITS, hedge funds and other investment
pools, corporate and public
retirement plans,
insurance companies, foundations, endowments and
investment managers. Economic, market or other
factors that reduce the level or rates of savings in or
with those institutions, either through reductions in
financial asset valuations or through changes in
investor preferences, could materially reduce our fee
revenue and have a material adverse effect on our
consolidated results of operations.
State Street Corporation | 34
If we are unable to effectively manage our capital
and liquidity, including by continuously attracting
deposits and other short-term
funding, our
consolidated financial condition, including our
regulatory capital ratios, our consolidated results
of operations and our business prospects, could
be adversely affected.
is critical
Liquidity management, including on an intra-day
basis,
the management of our
consolidated statement of condition and to our ability
to service our client base. We generally use our
liquidity to:
to
• meet clients' demands for return of their
deposits;
•
•
extend credit to our clients in connection with
our investor services businesses; and
fund the pool of long- and intermediate-term
assets that are included in the investment
securities and loan portfolio carried in our
consolidated statement of condition.
Because the demand for credit by our clients,
particularly settlement related extensions of credit, is
difficult to predict and control, and may be at its peak
at times of disruption in the securities markets, and
because the average maturity of our investment
securities and loan portfolios is longer than the
contractual maturity of our client deposit base, we
need to continuously attract, and are dependent on
access to, various sources of short-term funding.
Since the 2008 financial crisis, the level of client
deposits held by us has tended to increase during
times of market disruption; however, since such
deposits are considered to be transitory, we have
historically deposited so-called excess deposits with
U.S. and non-U.S. central banks and in other highly
liquid but low-yielding instruments. These levels of
excess client deposits, when they manifest, have
increased our NII but have adversely affected our
NIM.
deposits
In managing our liquidity, our primary source of
short-term funding is client deposits, which are
predominantly
by
transaction-based
institutional investors. Our ability to continue to attract
these deposits, and other short-term funding sources
such as certificates of deposit, is subject to variability
based on a number of factors, including volume and
volatility in global financial markets, the interest rates
that we are prepared to pay for these deposits, the
loss or gain of one or more clients, client interest in
reducing
the
perception of safety of these deposits or short-term
short-term
obligations
investments available to our clients, including the
capital markets, and the classification of certain
deposits
related
discussions we may have from time to time with
clients regarding better balancing our clients' cash
regulatory purposes and
non-interest
alternative
deposits,
bearing
relative
for
to
management needs with our economic and regulatory
objectives.
The Parent Company is a non-operating holding
company and generally maintains only limited cash
and other liquid resources at any time primarily to
meet anticipated near-term obligations. To effectively
manage our liquidity we routinely transfer assets
among affiliated entities, subsidiaries and branches.
factors, such as regulatory
Internal or external
requirements and standards,
including resolution
planning and restrictions on dividend distributions,
influence our liquidity management and may limit our
ability to effectively transfer liquidity internally which
could, among other things, restrict our ability to fund
operations, dividends or stock repurchases or pay
interest on debt securities or require us to seek
external and potentially more costly capital and
impact our liquidity position.
In addition, while not obligations of ours, the
investment products that we manage for third parties
may be exposed to liquidity risks. These products
may be funded on a short-term basis or the clients
participating in these products may have a right to the
return of cash or assets on limited notice. These
business activities include, among others, securities
finance collateral pools, money market and other
short-term investment funds and liquidity facilities
utilized in connection with municipal bond programs.
If clients demand a return of their cash or assets,
particularly on limited notice, and these investment
pools do not have the liquidity to support those
demands, we could be forced to sell investment
securities held by these asset pools at unfavorable
prices, damaging our reputation as a service provider
and potentially exposing us to claims related to our
management of the pools.
The availability and cost of credit in short-term
markets are highly dependent on
the markets'
perception of our liquidity and creditworthiness. Our
efforts to monitor and manage our liquidity risk,
intra-day basis, may not be
including on an
successful or sufficient to deal with dramatic or
unanticipated changes
the global securities
in
markets or other event-driven reductions in liquidity.
As a result of such events, among other things, our
cost of funds may increase, thereby reducing our NII,
or we may need to dispose of a portion of our
investment securities portfolio, which, depending on
market conditions, could result in a loss from such
sales of investment securities being recorded in our
consolidated statement of income.
State Street Corporation | 35
We may need to raise additional capital or debt in
the future, which may not be available to us or
may only be available on unfavorable terms.
turn, our liquidity. A failure to maintain an acceptable
credit rating may also preclude us
from being
competitive in various products.
We may need to raise additional capital or debt
in order to maintain our credit ratings, in response to
regulatory changes, including capital rules, or for
other purposes, including financing acquisitions and
joint ventures. For example, in March 2021 and
November 2021, we issued additional long-term debt
in order to maintain levels to satisfy internal and
regulatory requirements, and in September 2021, we
issued common stock to finance our acquisition of the
BBH Investor Services business.
to access
However, our ability
the capital
markets, if needed, on a timely basis or at all will
depend on a number of factors, such as the state of
the financial markets and securities law requirements
and standards. In the event of rising interest rates,
disruptions in financial markets, negative perceptions
of our business or our financial strength, or other
factors that would increase our cost of borrowing, we
cannot be sure of our ability to raise additional capital
or debt, if needed, on terms acceptable to us. Any
diminished ability to raise additional capital or debt, if
needed, could adversely affect our business and our
ability to implement our business plan, capital plan
and strategic goals,
financing of
acquisitions and joint ventures and our efforts to
maintain regulatory compliance.
including
the
Any downgrades in our credit ratings, or an
actual or perceived reduction in our financial
strength, could adversely affect our borrowing
costs, capital costs and liquidity position and
cause reputational harm.
Major independent rating agencies publish credit
ratings for our debt obligations based on their
evaluation of a number of factors, some of which
relate
to our performance and other corporate
developments, including financings, acquisitions and
joint ventures, and some of which relate to general
industry conditions. We anticipate that the rating
agencies will continue to review our ratings regularly
based on our consolidated results of operations and
developments in our businesses, including regulatory
considerations such as resolution planning. One or
more of the major independent credit rating agencies
have in the past downgraded, and may in the future
downgrade, our credit ratings, or have negatively
revised their outlook for our credit ratings. The current
market and regulatory environment and our exposure
to financial institutions and other counterparties,
including sovereign entities, increase the risk that we
may not maintain our current ratings, and we cannot
provide assurance that we will continue to maintain
our current credit ratings. Downgrades in our credit
ratings may adversely affect our borrowing costs, our
capital costs and our ability to raise capital and, in
Additionally, our counterparties, as well as our
clients, rely on our financial strength and stability and
evaluate the risks of doing business with us. If we
experience diminished financial strength or stability,
actual or perceived, due to the effects of market or
regulatory developments, announced or rumored
business developments, consolidated
results of
operations, a decline
in our stock price or a
downgrade to our credit rating, our counterparties
may be less willing to enter into transactions, secured
or unsecured, with us, our clients may reduce or
place limits on the level of service we provide to them
or seek to transfer the business, in whole or in part, to
other service providers or our prospective clients may
select other service providers. Any, or all of these
may have adverse effects on our business and
reputation.
financial
The risk that we may be perceived as less
creditworthy than other market participants is higher
as a result of recent market developments, which
include an environment in which the consolidation,
and in some instances failure, of financial institutions,
institutions, has
including major global
resulted
larger
in a smaller number of much
counterparties and competitors. If our counterparties
perceive us to be a less viable counterparty, our
ability to enter into financial transactions on terms
acceptable to us or our clients, on our or our clients'
behalf, will be materially compromised. If our clients
reduce their deposits with us or select other service
providers for all or a portion of the services we
provide
revenues will decrease
to
accordingly.
them, our
Compliance and Regulatory Risks
to
Our business and capital-related activities,
including our ability
to
shareholders and repurchase our capital stock,
may be adversely affected by our implementation
of regulatory capital and liquidity standards that
we must meet or as a result of regulatory capital
stress testing.
return capital
Basel III and Dodd-Frank Act
We are required to calculate our risk-based
capital ratios under both the Basel III advanced
approaches and the Basel III standardized approach,
and we are subject to the more stringent of the risk-
based capital ratios calculated under the advanced
approaches and
the
standardized approach in the assessment of our
capital adequacy.
those calculated under
In implementing various aspects of these capital
regulations, we are making interpretations of the
intent. The Federal Reserve may
regulatory
determine that we are not in compliance with the
State Street Corporation | 36
capital rules and may require us to take actions to
come into compliance that could adversely affect our
business operations, our regulatory capital structure,
our capital ratios or our financial performance, or
otherwise restrict our growth plans or strategies. In
addition, banking regulators could change the Basel
III rule or their interpretations as they apply to us,
or
changes
including
interpretations made
implementing
provisions of
the Dodd-Frank Act, which could
adversely affect us and our ability to comply with the
Basel III rule.
to
in regulations
standards
these
Along with the Basel III rule, banking regulators
also introduced additional requirements, such as the
SLR, LCR and the NSFR, each of which presents
compliance risks.
For example, these regulatory requirements
could have a material effect on our business
activities, including the management and composition
of our investment securities portfolio and our ability to
extend credit through committed facilities, loans to
our clients or our principal securities lending activities
as the structure of our balance sheet changes. In
addition, further capital and liquidity requirements are
being implemented or are under consideration by
U.S. and international banking regulators. Any of
these rules, or any additional regulatory initiatives
introduced under the current administration, could
have a material effect on our capital and liquidity
planning and
the
related activities,
management and composition of our investment
securities portfolio and our ability to extend committed
contingent credit facilities to our clients. The full
these rules, and of other regulatory
effects of
initiatives related to capital or liquidity, on us and
State Street Bank are subject to further regulatory
guidance, action or rule-making.
Systemic Importance
including
As a G-SIB, we are generally subject to the most
stringent provisions under the Basel III rule. For
example, we are subject to the Federal Reserve's
rules on the implementation of capital surcharges for
U.S. G-SIBs, and on TLAC, LTD and clean holding
company requirements for U.S. G-SIBs which we
refer to as the "TLAC rule". For additional information
on these requirements, refer to the “Regulatory
Capital Adequacy and Liquidity Standards” section
under “Supervision and Regulation” in Business in
this Form 10-K.
Not all of our competitors have similarly been
designated as systemically important nor are all of
them subject to the same degree of regulation as a
bank or financial holding company, and therefore
some of our competitors are not subject to the same
additional capital requirements.
Supervisory Stress Testing and Capital Planning
We are required by the Federal Reserve to
testing of our business
conduct periodic stress
for us
in order
operations and to develop an annual capital plan and
are subject to supervisory stress testing, all as part of
the Federal Reserve's stress testing and capital
planning processes. The stress testing and capital
planning processes,
severity and other
the
characteristics of which may evolve from year-to-year,
are used by the Federal Reserve to evaluate our
management of capital and the adequacy of our
regulatory capital and to determine the SCB that we
must maintain above our minimum regulatory capital
requirements
to make capital
distributions and discretionary bonuses without
limitation. The results of the supervisory stress testing
process are difficult to predict due, among other
things, to the Federal Reserve's use of proprietary
stress models that differ from our internal models.
The results of the Federal Reserve’s supervisory
stress tests may result in an increase in our SCB
requirement. The amounts of the planned capital
actions in our capital plan in any year, including stock
repurchases and dividends, may be substantially
reduced from the amounts included in prior capital
plans. These reductions may reflect changes in one
or more different factors, including our business
prospects and related capital needs, our capital
position, proposed acquisitions or other uses of
capital, the models used in our capital planning
process, the supervisory models used by the Federal
Reserve to stress our balance sheet, the Federal
Reserve’s hypothetical economic scenarios for the
supervisory stress
the Federal
Reserve’s stress testing instructions and the Federal
Reserve’s supervisory expectations for the capital
planning process. Any of these potential events could
require us, as applicable, to revise our stress-testing
or capital-management approaches, resubmit our
capital plan or postpone, cancel or alter our planned
capital actions. In addition, changes in our business
strategy, merger or acquisition activity or uses of
capital could result in a change in our capital plan and
its associated capital actions, and may require us to
resubmit our capital plan to the Federal Reserve,
which could prompt
to
recalculate our SCB requirement. We are also subject
to asset quality reviews and stress testing by the ECB
and in the future we may be subject to similar reviews
and testing by other regulators.
the Federal Reserve
testing process,
Our
liquidity
implementation of capital and
requirements may not be approved or may be
objected to by the Federal Reserve, and the Federal
Reserve may impose capital requirements in excess
of our expectations or require us to maintain levels of
liquidity that are higher than we may expect and
which may adversely affect our consolidated
revenues. In the event that our implementation of
capital and liquidity requirements under regulatory
initiatives or our current capital structure are
determined not to conform with current and future
State Street Corporation | 37
capital requirements, our ability to deploy capital in
the operation of our business or our ability to
distribute capital to shareholders or to repurchase our
capital stock may be constrained, and our business
may be adversely affected. In addition, we may
choose to forgo business opportunities, due to their
impact on our capital plan or stress tests, including
our SCB requirement. Likewise, in the event that
regulators in other jurisdictions in which we have
banking subsidiaries determine that our capital or
liquidity levels do not conform with current and future
regulatory requirements, our ability to deploy capital,
our levels of liquidity or our business operations in
those jurisdictions may be adversely affected.
For additional
information about
the above
matters, refer to “Regulatory Capital Adequacy and
Liquidity Standards” section under "Supervision and
Regulation" in Business and “Capital” section under
"Financial Condition"
our Management's
in
Discussion and Analysis in this Form 10-K.
We face extensive and changing government
regulation in the U.S. and in non-U.S. jurisdictions
in which we operate, which may increase our
to
costs and expose us
compliance.
to risks related
for and
increase
the marketplace
Most of our businesses are subject to extensive
regulation by multiple regulatory bodies, and many of
to which we provide services are
the clients
themselves subject to a broad range of regulatory
requirements. These regulations may affect the scope
of, and the manner and terms of delivery of, our
services. For example, potential changes in the
regulation of money market funds have the potential
to alter
the
complexity and costs of providing services to, those
institution with substantial
funds. As a
international operations, we are subject to extensive
regulation and supervisory oversight, both inside and
outside of the U.S. This regulation and supervisory
oversight affects, among other things, the scope of
our activities and client services, our capital and
organizational structure, our ability
the
operations of our subsidiaries, our lending practices,
our dividend policy, our common share repurchase
actions, the manner in which we market our services,
our acquisition activities and our interactions with
foreign regulatory agencies and officials.
financial
fund
to
In particular, we are registered with the Federal
Reserve as a bank holding company pursuant to the
Bank Holding Company Act of 1956. The Bank
Holding Company Act generally limits the activities in
which we and our non-banking subsidiaries may
engage to managing or controlling banks and to
activities considered to be closely related to banking.
As a bank holding company that has elected to be
treated as a financial holding company under the
Bank Holding Company Act, we and some of our non-
banking subsidiaries may also engage in a broader
range of activities considered to be “financial in
nature.” Financial holding company status may be
denied if we and our banking subsidiaries do not
remain well capitalized and well managed or fail to
comply with Community Reinvestment Act
obligations. Currently, under
the Bank Holding
Company Act, we may not be able to engage in new
activities or acquire shares or control of other
businesses.
We are unable to predict what, if any, changes to
the regulatory environment may be enacted by
Congress, both chambers of which are under
Democratic control, or the presidential administration
and what the impact of any such changes will be on
financial condition,
our results of operations or
including increased expenses or changes in the
demand for our services or our ability to engage in
transactions to expand our business, or on the U.S.-
domestic or global economies or financial markets.
Moreover, the current presidential administration
is expected to make certain changes in the leadership
and senior staffs of the federal banking agencies.
Such changes are likely to impact the rulemaking,
supervision, examination and enforcement priorities
and policies of the agencies. In addition, changes in
key personnel at the agencies that regulate such
banking organizations, including the federal banking
agencies, may result in differing interpretations of
existing rules and guidelines and potentially more
stringent enforcement and more severe penalties
than previously. The potential impact of any changes
in agency personnel, policies, priorities and
interpretations on
financial services sector,
the
including us, cannot be predicted at this time.
We expect that our business will remain subject
to extensive regulation and supervision. Several other
aspects of the regulatory environment in which we
operate, and related risks, are discussed below.
Additional information is provided under "Supervision
and Regulation” in Business in this Form 10-K.
Resolution Planning
We are required to periodically submit a plan for
rapid and orderly resolution in the event of material
financial distress or failure commonly referred to as a
resolution plan or a living will to the Federal Reserve
and the FDIC under Section 165(d) of the Dodd-
Frank Act. Through resolution planning, we seek, in
the event of insolvency, to maintain State Street
Bank’s role as a key infrastructure provider within the
financial system, while minimizing risk to the financial
system and maximizing value for the benefit of our
stakeholders. Significant management attention and
resources are devoted in an effort to meet regulatory
expectations with respect to resolution planning.
State Street Corporation | 38
the
with
TLAC
applicable
financial stress
In the event of material financial distress or
failure, our preferred resolution strategy is the SPOE
Strategy. Our
including our
resolution plan,
implementation of the SPOE Strategy with a secured
support agreement, may result in significant risks,
including that: (1) the SPOE Strategy and the
obligations under
related secured support
agreement may result in the recapitalization of and/or
provision of liquidity to State Street Bank and our
other material entities and the commencement of
bankruptcy proceedings by the Parent Company at
than might
an earlier stage of
otherwise occur without such mechanisms in place;
(2) as an expected effect of the SPOE Strategy,
together
regulatory
requirements, our losses will be imposed on Parent
Company shareholders and the holders of long-term
debt and other forms of TLAC securities currently
outstanding or issued in the future by the Parent
Company, as well as on any other Parent Company
creditors, before any of our losses are imposed on
the holders of the debt securities of State Street Bank
or certain of the Parent Company’s other operating
subsidiaries or any of their depositors or creditors and
before U.S. taxpayers are put at risk; (3) there can be
no assurance
there would be sufficient
recapitalization resources available to ensure that
State Street Bank and our other material entities are
adequately capitalized following the triggering of the
requirements to provide capital and/or liquidity under
the secured support agreement; and (4) there can be
no assurance that credit rating agencies, in response
the secured support
to our resolution plan or
agreement, will not downgrade, place on negative
watch or change their outlook on our debt credit
ratings, generally or on specific debt securities.
Additional information about the SPOE Strategy,
including related risks, is provided under "Recovery
and Resolution Planning" in Business in this Form 10-
K.
that
Systemic Importance
Our qualification in the U.S. as a SIFI, and our
designation by the Financial Stability Board as a G-
SIB, to which certain regulatory capital surcharges
may apply, subjects us to incrementally higher capital
and prudential requirements, increased scrutiny of
our activities and potential additional regulatory
requirements or heightened regulatory expectations
as compared to those applicable to some of the
financial institutions with which we compete as a
custodian or asset manager. This qualification and
designation also has significantly increased, and may
continue to increase, our expenses associated with
regulatory compliance,
including personnel and
systems, as well as implementation and related costs
to enhance our programs.
Global and Non-U.S. Regulatory Requirements
lawsuits,
jurisdictions
fines, penalties,
relating
laundering.
The breadth of our business activities, together
with the scope of our global operations and varying
business practices in relevant jurisdictions, increase
the complexity and costs of meeting our regulatory
compliance obligations, including in areas that are
receiving significant regulatory scrutiny. We are,
therefore, subject to related risks of non-compliance,
including
regulatory
sanctions, difficulties
in obtaining governmental
approvals, limitations on our business activities or
reputational harm, any of which may be significant.
For example, the global nature of our client base
laws and
requires us
to comply with complex
to
regulations of multiple
In
economic sanctions and money
addition, we are required to comply not only with the
U.S. Foreign Corrupt Practices Act, but also with the
applicable anti-corruption laws of other jurisdictions in
which we operate. Further, our global operating
model requires that we comply with information
resiliency and outsourcing oversight
security,
requirements,
to affiliated
including with respect
entities, of multiple jurisdictions and enable our clients
to comply with information security, resiliency and
outsourcing oversight requirements imposed upon
them. Regulatory scrutiny of compliance with these
and other laws and regulations is increasing and may,
in some respects, impede the implementation of our
global operating model that is central to both delivery
of client service requirements and cost efficiency. We
sometimes face inconsistent laws and regulations
across the various jurisdictions in which we operate.
The evolving regulatory landscape may interfere with
our ability to conduct our operations, with our pursuit
of a common global operating model or with our
ability to compete effectively with other financial
institutions operating in those jurisdictions or which
may be subject to different regulatory requirements
than apply to us. In particular, non-U.S. regulations
and initiatives that may be inconsistent or conflict with
current or proposed regulations in the U.S. could
create increased compliance and other costs that
would adversely affect our business, operations or
the
profitability. Geopolitical events also have
potential to increase the complexity and cost of
regulatory compliance.
and
In addition to U.S. regulatory initiatives, we are
further affected by non-U.S. regulatory initiatives,
including the implementation of the Basel prudential
framework
the European Commission’s
Investment Firm Review and Central Securities
Depositories Regulation, as well as proposals for
amending the AIFM Directive and under the Capital
Markets Union Action Plan. Recent, proposed or
potential regulations in the U.S. and E.U. with respect
to short-term wholesale funding, such as repurchase
agreements or securities lending, or other non-bank
State Street Corporation | 39
finance activities, could also adversely affect not only
our own operations but also the operations of the
clients to which we provide services. Concerns
regarding the liquidity and valuation of prime money
market
funds and similar products, as well as
potential related regulation, may adversely impact
the cash management products we offer. In addition,
anti-competitive, voting power, governance and other
concerns with passive investment strategies continue
to be the subject of legislative and regulatory debate
impact both our asset
which could significantly
that we
management business and
service.
the clients
Consequences of Regulatory Environment and
Compliance Risks
regulatory
increase our
Domestic and international regulatory reform
could limit our ability to pursue certain business
opportunities,
capital
requirements, alter the risk profile of certain of our
core activities and impose additional costs on us,
otherwise adversely affect our business, our
consolidated
financial
condition and have other negative consequences,
including, a reduction of our credit ratings. Different
countries may respond to the market and economic
environment in different and potentially conflicting
manners, which could
the cost of
compliance for us.
results of operations or
increase
The evolving regulatory environment, including
changes to existing regulations and the introduction
of new regulations, may also contribute to decisions
we may make to suspend, reduce or withdraw from
existing businesses, activities, markets or initiatives.
In addition to potential lost revenue associated with
any such suspensions, reductions or withdrawals, any
such suspensions, reductions or withdrawals may
result in significant restructuring or related costs or
exposures.
regulatory authorities
If we do not comply with governmental
regulations, we may be subject to fines, penalties,
lawsuits, delays, or difficulties in obtaining regulatory
approvals or restrictions on our business activities or
harm to our reputation, which may significantly and
adversely affect our business operations and, in turn,
results of operations. The
our consolidated
willingness of
impose
meaningful sanctions, and the level of fines and
penalties
in connection with regulatory
violations, have increased substantially since the
2008 financial crisis. Regulatory agencies may, at
times, limit our ability to disclose their findings, related
actions or remedial measures. Similarly, many of our
regulatory
to
clients are
requirements and retain our services in order for us to
assist
legal
in complying with
requirements. Changes in these regulations can
significantly affect the services that we are asked to
provide, as well as our costs.
significant
imposed
subject
those
them
to
Adverse publicity and damage to our reputation
arising from the failure or perceived failure to comply
with legal, regulatory or contractual requirements
could affect our ability to attract and retain clients. If
we cause clients to fail to comply with any regulatory
requirements, we may be liable to them for losses
and expenses that they incur. In recent years,
regulatory oversight and enforcement have increased
substantially,
and
increasing the potential risks associated with our
operations. If this regulatory trend continues, it could
continue to adversely affect our operations and, in
turn, our consolidated results of operations and
financial condition.
additional
imposing
costs
For additional information, see the risk factor
“Our businesses may be adversely affected by
government enforcement and litigation.”
We are subject to enhanced external oversight as
a result of certain agreements entered into in
connection with the resolution of prior regulatory
or governmental matters.
In connection with the resolution of certain
proceedings relating to our having charged six clients
of our transition management business during 2010
and 2011 amounts in excess of the contractual terms,
into a deferred
in January 2017, we entered
prosecution agreement with
the Department of
Justice and the United States Attorney for the DOJ
under which we agreed to retain an independent
compliance and ethics monitor for a term which has
now been extended to 2022 (subject to further
extension) to, among other things, review and monitor
the effectiveness of our compliance controls and
business ethics and make related recommendations,
and in September 2017, we entered into a settlement
agreement with the SEC that also requires us to
retain an
independent ethics and compliance
consultant. In connection with the resolution of certain
proceedings relating to our announcement in 2015
that we had incorrectly invoiced clients for certain
expenses, in May 2021, we entered into a deferred
prosecution agreement with the office of the United
States Attorney for the District of Massachusetts
under which we agreed to retain an independent
compliance monitor for a term of up to two years and
comply with other requirements including cooperation
with the government. Responding to the monitor's
requests entails significant cost and management
to
attention and we are,
implement remediation plans to address any of the
monitor's recommendations. These recommendations
may require substantial cost and effort to remediate
and, even when consistent with our own control
enhancement objectives, may reflect differences in
approach,
than we may
independently intend. Under the deferred prosecution
agreements we also have a heightened obligation
in general, required
timing and
cost
State Street Corporation | 40
promptly to report issues involving potential or alleged
fraudulent activities to the DOJ.
in addition
As a result of the enhanced inspections and
monitoring activities to which we are subject under
these agreements, governmental authorities may
identify areas in which we may need to take actions,
which may be significant, to enhance our regulatory
compliance or risk management practices. Such
remedial actions may entail significant cost,
management attention, and systems development
and such efforts may affect our ability to expand our
business until such remedial actions are completed.
These actions may be
to remedial
measures required by the Federal Reserve and other
financial regulators following examinations as a result
of increased prudential expectations regarding our
compliance programs, culture and risk management.
Our failure to implement enhanced compliance and
risk management procedures in a manner and in a
the
time
applicable regulatory authority could adversely impact
our relationship with such regulatory authority and
could lead to restrictions on our activities or other
sanctions. Moreover, the identification of new or
additional
facts and circumstances suggesting
inappropriate or non-compliant conduct, whether
identified by us, the monitor or a regulatory authority,
in the course of an inspection, or independently by us
could lead to new governmental proceedings or the
re-opening of matters that were previously resolved.
The presence of the monitor, as well as governmental
rewarding whistleblowing, may also
programs
former
increase
employees alleging
that certain practices are
inconsistent with our legal or regulatory obligations.
instances of current or
to be responsive by
frame deemed
the
Our businesses may be adversely affected by
government enforcement and litigation.
and
regulatory,
governmental
The businesses in which we operate are highly-
regulated and subject to extensive external scrutiny
that may be directed generally to participants in the
businesses or markets in which we are involved or
may be specifically directed at us, including as a
result of whistleblower and qui tam claims. In the
course of our business, we are frequently subject to
law
various
enforcement inquiries, investigative demands and
subpoenas, and from time to time, our clients, or the
government on its own behalf or on behalf of our
clients or others, make claims and take legal action
relating to, among other things, our performance of
our fiduciary, contractual or regulatory responsibilities.
Often, the announcement of any such matters, or of
any settlement of a claim or action, whether it
involves us or others in our industry, may spur the
initiation of similar claims by other clients or
governmental parties. Regulatory authorities have,
and are likely to continue to, initiate cross industry
reviews when a material issue is identified at a
financial institution. Such inquiries involve costs and
management time and may lead to proceedings
relating to our own activities.
the attention of
for disgorgement, demands
Regardless of the outcome of any governmental
enforcement or litigation matter, responding to such
matters is time-consuming and expensive and can
divert
senior management.
Governmental enforcement and litigation matters can
involve claims
for
substantial monetary damages, the imposition of civil
or criminal penalties, and the imposition of remedial
sanctions or other required changes in our business
practices, any of which could result in increased
expenses, loss of client demand for our products or
services, or harm to our reputation. The exposure
that may be
associated with any proceedings
threatened, commenced or filed against us could
have a material adverse effect on our consolidated
results of operations for the period in which we
establish a reserve with respect to such potential
liability or upon our reputation.
In government
settlements since the 2008 financial crisis, the fines
imposed by authorities have increased substantially
and may exceed in some cases the profit earned or
harm caused by the regulatory or other breach. For
example, in 2021, we paid a $115 million penalty to
the office of the United Sates Attorney for the District
of Massachusetts to resolve potential criminal claims
arising from the invoicing matter. In addition, in
connection with
transition
management matter, we agreed to pay a fine of £22.9
million (approximately $37.8 million) to the U.K. FCA
in 2014 and fines of $32.3 million to each of the DOJ
and the SEC in 2017. As a further example, we paid
an aggregate of $575 million in 2016 to resolve a
series of investigations and governmental and private
claims alleging that our indirect foreign exchange
rates prior to 2008 were not adequately disclosed or
were otherwise improper. These matters have also
resulted in regulatory focus on the manner in which
we charge clients and related disclosures. This focus
may lead to increased and prolonged governmental
inquiries and client, qui tam and whistleblower claims
the amount and disclosure of
associated with
for our products and
compensation we receive
services.
the resolution of
the
Moreover, U.S. and certain
international
governmental authorities have increasingly brought
criminal actions against financial institutions, and
criminal prosecutors have increasingly sought and
obtained criminal guilty pleas, deferred prosecution
agreements or other criminal sanctions from financial
institutions. For example, in 2017 we entered into a
the U.S.
deferred prosecution agreement with
Department of Justice
the
resolution of the transition management matter and in
May 2021, we entered into a deferred prosecution
agreement with the office of the United States
in connection with
State Street Corporation | 41
for
the
the
increase
likelihood
the District of Massachusetts
in
Attorney
invoicing matter and such
connection with
agreement could
that
governmental authorities will seek criminal sanctions
against us in pending proceedings or future litigation
legal proceedings. See the risk factor “We are subject
to various legal proceedings relating to the manner in
which we have invoiced certain expenses, and the
outcome of such proceedings could materially
adversely affect our results of operations, or harm our
business or reputation.” Government authorities may
also pursue criminal claims against current or former
employees, and these matters can, among other
things, involve continuing reputational harm to us.
For example, four of our former employees were
indicted by U.S. prosecutors on charges of criminal
conspiracy in connection with their involvement in the
transition management matter. Two of
these
individuals pled guilty, and a third was convicted in
2018.
In many cases, we are required or may choose
to report inappropriate or non-compliant conduct to
the authorities, and our failure or delay to do so may
represent an independent regulatory violation or be
treated as an indication of non-cooperation with
governmental authorities. Even when we promptly
report a matter, we may nonetheless experience
regulatory fines, liabilities to clients, harm to our
reputation or other adverse effects. Moreover, our
settlement or other resolution of any matter with any
one or more regulators or other applicable party may
not forestall other regulators or parties in the same or
other jurisdictions from pursuing a claim or other
action against us with respect to the same or a similar
matter.
about
For more
current
information
contingencies relating to legal proceedings, see Note
13 to the consolidated financial statements in this
Form 10-K. The resolution of certain pending or
potential legal or regulatory matters could have a
material adverse effect on our consolidated results of
operations for the period in which the relevant matter
is resolved or an accrual is determined to be required,
on our consolidated financial condition or on our
reputation.
In view of the inherent difficulty of predicting the
outcome of legal and regulatory matters, we cannot
provide assurance as to the outcome of any pending
or potential matter or, if determined adversely against
us, the costs associated with any such matter,
particularly where the claimant seeks very large or
indeterminate damages or where the matter presents
novel legal theories, involves a large number of
the discretion of governmental
parties,
authorities
in seeking sanctions or negotiated
resolution or is at a preliminary stage. We may be
unable to accurately estimate our exposure to the
risks of legal and regulatory contingencies when we
involves
record reserves for probable and estimable loss
contingencies. As a result, any reserves we establish
may not be sufficient to cover our actual financial
exposure. Similarly, our estimates of the aggregate
range of reasonably possible loss for legal and
regulatory contingencies are based upon
then-
available information and are subject to significant
judgment and a variety of assumptions and known
and unknown uncertainties. The matters underlying
the estimated range will change from time to time,
and actual results may vary significantly from the
estimate at any time.
Our efforts to improve our billing processes and
practices are ongoing and may result in the
identification of additional billing errors.
in
inefficiencies
In 2015, we determined we had incorrectly
invoiced some of our Investment Servicing clients for
certain expenses. At that time, we began the process
of remediating these errors, improving our billing
the asset servicing
processes and controls
business and other businesses, and testing these
improved billing processes and controls. We are
continuing
to standardize, enhance, and, where
necessary, replace and enhance controls and invest
in new billing infrastructure. The objective of this
billing transformation program is to obtain greater
billing accuracy and timeliness. Because of the scale
of our business, identifying and remediating all
weaknesses and
in our billing
processes cannot be
implemented concurrently.
Accordingly, the costs to remediate billing errors
which may be discovered in that process, would likely
be incurred over a period that we are now unable
accurately to determine. As we work through this
process, we have discovered and may continue to
discover areas where we believe our billing
processes need improvement, where we believe we
have made billing errors with respect to particular
customers and categories of fees and expenses, and
where we believe billing arrangements between
ourselves and particular customers should be
clarified. Such discoveries may lead to increased
expense and decreased revenues, the need to
remediate
government
investigations, or litigation that may materially impact
our business, financial results and reputation.
errors,
billing
prior
State Street Corporation | 42
to
or
loss,
theft,
damage
Any
other
misappropriation or inadvertent disclosure of, or
inappropriate
confidential
information we possess could have an adverse
impact on our business and could subject us to
regulatory actions, litigation and other adverse
effects.
access
the
to,
information.
to maintain
Our businesses and relationships with clients
are dependent on our ability
the
confidentiality of our and our clients' trade secrets
and other confidential information (including client
transactional and holdings data and personal data
about our clients, our clients' clients and our
employees). Unauthorized access, or failure of our
controls with respect to granting access to our
systems, has in the past occurred and may in the
future occur, resulting in theft, loss, damage to or
other misappropriation of such
In
addition, our and our vendors’ personnel have in the
inadvertently or
past and may
deliberately disclose client or other confidential
information. Any
to other
misappropriation or
inadvertent disclosure of
information could have a material
confidential
adverse impact on our competitive position, our
relationships with our clients and our reputation and
could subject us to regulatory inquiries, enforcement
and fines, civil litigation and possible financial liability
or costs. To the extent any of these events involve
personal information, the risks of enhanced regulatory
scrutiny and the potential financial liabilities are
exacerbated, particularly under data protection
regulations such as the GDPR.
loss, damage
future
theft,
the
in
Our calculations of credit, market and operational
risk exposures, total RWA and capital ratios for
regulatory purposes depend on data
inputs,
formulae, models, correlations and assumptions
that are subject to change over time, which
changes, in addition to our consolidated financial
results, could materially
risk
exposures, our total RWA and our capital ratios
from period to period.
impact our
To calculate our credit, market and operational
risk exposures, our total RWA and our capital ratios
for regulatory purposes, the Basel III rule involves the
use of current and historical data, including our own
loss data and similar information from other industry
participants, market volatility measures, interest rates
and spreads, asset valuations, credit exposures and
the creditworthiness of our counterparties. These
calculations also involve the use of quantitative
formulae, statistical models, historical correlations
and significant assumptions. We refer to the data,
formulae, models, correlations and assumptions, as
well as our related
internal processes, as our
“advanced systems.” While our advanced systems
in nature, significant
are generally quantitative
components involve the exercise of judgment based
on, among other factors, our and the financial
services industry's evolving experience. Any of these
judgments or other elements of our advanced
systems may not, individually or collectively, precisely
represent or calculate the scenarios, circumstances,
outputs or other results for which they are designed
or intended. Collectively, they represent only our
estimate of associated risk.
In addition, our advanced systems are subject to
update and periodic revalidation in response to
changes in our business activities and our historical
experiences, forces and events experienced by the
market broadly or by individual financial institutions,
changes in regulations and regulatory interpretations
and other factors, and are also subject to continuing
regulatory review and approval. For example, a
significant operational loss experienced by another
financial institution, even if we do not experience a
related loss, could result in a material change in the
output of our advanced systems and a corresponding
material change in our risk exposures, our total RWA
and our capital ratios compared to prior periods. An
operational loss that we experience could also result
in a material change in our capital requirements for
operational risk under the advanced approaches,
depending on the severity of the loss event, its
characterization among
the seven Basel-defined
UOM, and the stability of the distributional approach
for a particular UOM. This change in our capital
requirements could be without direct correlation to the
effects of the loss event or the timing of such effects
on our results of operations. Due to the influence of
changes in our advanced systems, whether resulting
from changes in data inputs, regulation or regulatory
supervision or interpretation, specific to us or more
general market, or individual financial institution-
specific, activities or experiences, or other updates or
factors, we expect that our advanced systems and
our credit, market and operational risk exposures, our
total RWA and our capital ratios calculated under the
Basel III rule will change, and may be volatile, over
time, and that those latter changes or volatility could
be material as calculated and measured from period
to period.
State Street Corporation | 43
Changes in accounting standards may adversely
affect our consolidated financial statements.
to
New accounting standards, or changes
existing accounting standards, resulting both from
initiatives of the FASB as well as changes in the
interpretation of existing accounting standards
potentially could affect our consolidated results of
operations, cash flows and financial condition. These
changes can materially affect how we record and
report our consolidated results of operations, cash
flows,
financial
information. In some cases, we could elect, or be
required,
to apply a new or revised standard
retroactively, resulting in the revised treatment of
certain transactions or activities, and, in some cases,
the revision of our consolidated financial statements
for prior periods. For additional information regarding
changes in accounting standards, refer to the “Recent
Accounting Developments” section of Note 1 to the
consolidated financial statements in this Form 10-K.
financial condition and other
in
tax
Changes
laws, rules or regulations,
challenges to our tax positions with respect to
historical
the
composition of our pre-tax earnings may increase
our effective tax rate and thus adversely affect
our consolidated financial statements.
transactions, and changes
in
including Massachusetts,
Our businesses can be directly or indirectly
affected by new tax legislation, the expiration of
existing tax laws or the interpretation of existing tax
federal and state
laws worldwide. The U.S.
governments,
and
jurisdictions around the world continue to review
proposals to amend tax laws, rules and regulations
applicable to our businesses that could have a
negative impact on our capital or after-tax earnings.
In the normal course of our business, we are subject
to review by U.S. and non-U.S. tax authorities. A
review by any such authority could result in an
increase in our recorded tax liability. In addition to the
is
aforementioned risks, our effective
dependent on the nature and geographic composition
of our pre-tax earnings and could be negatively
affected by changes in these factors.
tax rate
The market transition away from the use of the
London Interbank Offered Rate (LIBOR) and other
reference rates affected by reference rate reform
as
impose
additional costs on us and may expose us to
increased operational, model and financial risk.
rate benchmarks may
interest
market participants ahead of applicable deadlines
using various mechanisms, including amendment,
refinancing, implementation of industry protocols and
fallback rate provisions, and if applicable, remedial
legislation at the state or national level. Multiple new
alternative reference rates and related conventions
have been developed for various financial products
and national currencies, including for derivatives
contracts, loans and cash products.
to
Our
impact
failure or
the economic
timely plan and
inability
implement an effective LIBOR transition program to
maintain operational and service continuity and to
minimize
for our clients,
ourselves and other stakeholders could negatively
financial performance.
impact our business and
Those dependencies
limitation,
in our
LIBOR-based securities and
investment portfolio, LIBOR-based preferred stock
and long-term debt issued by us, and LIBOR-based
client fee schedules and deposit pricing. Also, to
mitigate any potential weaknesses in the underlying
models, inadequate assumptions or reliance on poor
or inaccurate data, our internal models which support
decision making and risk management may require
adjustments.
include, without
loans held
Assets held by our customers in the investment
portfolios that we service, or in the investment
portfolios that we manage for others, may have
LIBOR-based terms. As such, we must enhance our
processes and systems to account for new alternative
reference rates-based instruments and products as
they come to market, the transition of existing LIBOR-
based instruments to their fallback language, and
uncertainty as to how such instruments should be
valued where such fallback language is unclear.
These process and system requirements could
adversely
in some
impact our business, which
instances is dependent on critical inputs from third
parties, who themselves must timely adapt to market
changes. Failure to implement the terms of those
instruments in a manner consistent with customer
expectations could lead to disputes and operational
issues.
failure
Failure or perceived
to adequately
manage the LIBOR transition could also affect our
ability to attract and retain clients. Uncertainty relative
to external developments necessary for the market
transition away from LIBOR but outside of our control,
such as the passage of remedial legislation, could
further increase the costs and risks of the transition
for us or our subsidiaries.
Regulators globally have mandated that banks
and other regulated financial institutions stop using
the London Interbank Offered Rate (LIBOR - a
floating benchmark interest rate for each of five major
currencies)
financial contracts after
December 31, 2021, with certain narrow exceptions.
Legacy LIBOR contracts which remain outstanding
after December 31, 2021 must be remediated by
for all new
State Street Corporation | 44
Operational Risks
Our controls and procedures may fail or be
circumvented, our risk management policies and
procedures may be inadequate, and operational
risks could adversely affect our consolidated
results of operations.
We have in the past failed and may in the future
fail to identify and manage risks related to a variety of
aspects of our business, including cybersecurity,
information technology risk, operational risk and
resiliency, interest rate risk, foreign exchange risk,
trading risk, fiduciary risk, legal and compliance risk,
liquidity risk and credit risk. We have adopted various
controls, procedures, policies and systems to monitor
and manage risk. We cannot provide assurance that
those controls, procedures, policies and systems are
or will be adequate to identify and manage internal
and external risks, including risks related to service
providers, in our various businesses. The risk of
contractors,
individuals, either employees or
engaging in conduct harmful or misleading to clients
or
to us, such as consciously circumventing
established control mechanisms to exceed trading or
investment management limitations, committing fraud
or improperly selling products or services to clients, is
particularly challenging to manage through a control
framework. In addition, we are subject to increased
resiliency risk, requiring continuous reinvestment,
enhancement and
in and of our
information technology and operational infrastructure,
controls and personnel which may not be effectively
or timely deployed or integrated. Moreover, the
financial and reputational impact of control or conduct
failures can be significant. Persistent or repeated
issues with
information
to
technology and operational resiliency or individual
conduct have raised and may in the future raise
concerns among regulators regarding our culture,
governance and control environment. There can be
no assurance that our efforts to address such risks
will be effective. While we seek to contractually limit
our financial exposure to operational risk, the degree
of protection that we are able to achieve varies, and
our potential exposure may be greater than the
revenue we anticipate that we will earn from servicing
our clients.
improvement
controls,
respect
In addition, our businesses and the markets in
which we operate are continuously evolving. For
example, in 2021, we established State Street Digital
to focus on the development of digital assets and
technologies. We will need
to make additional
investments to develop the operational infrastructure
and to enhance our compliance and risk management
capabilities to support these businesses, which may
increase the operating expenses of such businesses.
Moreover, we may fail to identify or fully understand
the implications of changes in our businesses or the
financial markets and fail to adequately or timely
in
the
to address
enhance our risk
those
framework
changes. To the extent that our risk framework is
ineffective, either because it fails to keep pace with
financial markets, regulatory or
changes
industry requirements, technology and cybersecurity
developments, our businesses, our counterparties,
clients or service providers or for other reasons, we
could incur losses, suffer reputational damage or find
ourselves out of compliance with applicable
regulatory or contractual mandates or expectations,
and subject to regulatory inquiry or action against us.
including
research,
trading services and
leading provider of services
Operational risk is inherent in all of our business
activities. As a
to
institutional investors, we provide a broad array of
investment
services,
investment
management,
servicing that expose us to operational risk. In
addition, these services generate a broad array of
complex and specialized servicing, confidentiality and
fiduciary requirements, many of which involve the
opportunity for human, systems or process errors. We
face the risk that the control policies, procedures and
systems we have established to comply with our
operational or security requirements will fail, will be
inadequate or will become outdated. We also face the
potential for loss resulting from inadequate or failed
internal processes, employee
supervision or
monitoring mechanisms, service-provider processes
or other systems or controls, which could materially
affect our future consolidated results of operations.
Given the volume and magnitude of transactions we
process on a daily basis, operational losses represent
a potentially significant financial risk for our business.
Operational errors that result in us remitting funds to
a failing or bankrupt entity may be irreversible, and
may subject us to losses.
including
functions,
We may also be subject to disruptions from
external events that are wholly or partially beyond our
control, which could cause delays or disruptions to
operational
information
processing and financial market settlement functions.
In addition, our clients, vendors and counterparties
could suffer from such events. Should these events
affect us, or the clients, vendors or counterparties
with which we conduct business, our consolidated
results of operations could be negatively affected.
When we record balance sheet accruals for probable
and estimable
to
operational losses, we may be unable to accurately
estimate our potential exposure, and any accruals we
establish to cover operational losses may not be
sufficient to cover our actual financial exposure,
which could have a material adverse effect on our
consolidated results of operations.
loss contingencies
related
State Street Corporation | 45
to non-U.S.
jurisdictions and
Cost shifting
outsourcing may expose us
increased
operational risk and reputational harm and may
not result in expected cost savings.
to
regarding
vendors
in
We manage expenses by migrating certain
business processes and business support functions
to lower-cost geographic locations, such as India,
Poland and China, and by outsourcing to vendors and
joint ventures in various jurisdictions. This effort
exposes us to the risk that we may not maintain
service quality, control and effective management or
business resiliency within these operations during
and after transitions. These migrations also involve
risks that our outsourcing vendors or joint ventures
may not comply with their servicing and other
contractual obligations to us, including with respect to
indemnification and information security, and to the
risk that we may not satisfy applicable regulatory
responsibilities
the management and
oversight of outsourcing providers, joint ventures and
other third parties. Our geographic footprint also
exposes us to the relevant macroeconomic, political,
legal and similar risks generally involved in doing
business in the jurisdictions in which we establish
lower-cost locations or joint ventures or in which our
outsourcing
operations,
particularly
locations where we have a
concentration of our operational activities, such as
India, Poland and China. The increased elements of
risk that arise from certain operating processes being
conducted in some jurisdictions could lead to an
increase
in reputational risk. During periods of
transition of operations, greater operational risk and
client concerns exist with respect to maintaining a
high level of service delivery and business continuity.
The extent and pace at which we are able to move
functions to lower-cost locations, joint ventures and
outsourcing providers may also be affected by
political, regulatory and client acceptance issues,
including with respect to data use, storage and
security. Such relocation or outsourcing of functions
also entails costs, such as technology, real estate and
restructuring expenses, which may offset or exceed
the expected financial benefits of the relocation or
outsourcing. In addition, the financial benefits of
lower-cost
locations and of outsourcings may
diminish over time or could be offset in the event that
the U.S. or other jurisdictions impose tax, trade
barrier or other measures which seek to discourage
the use of lower cost jurisdictions.
locate
their
to
access
Any failures of or damage to, attack on or
unauthorized
information
technology systems or facilities or disruptions to
our continuous operations,
the
systems, facilities or operations of third parties
with which we do business, such as resulting
from cyber-attacks, could result in significant
including
our
costs and reputational damage and impacts our
ability to conduct our business activities.
of
services
from abroad, resulting
Our businesses depend on
information
technology infrastructure, both internal and external,
to, among other things, record and process a large
volume of increasingly complex transactions and
other data, in many currencies, on a daily basis,
across numerous and diverse markets and
jurisdictions and to maintain that data securely. In
recent years, several financial services firms have
launched both
suffered successful cyber-attacks
the
domestically and
disruption
or
misappropriation of sensitive or private data and
reputational harm. We also have been subjected to
cyber-attacks, and although we have not to our
knowledge suffered a material breach or suspension
of our systems, it is possible that we could suffer such
a breach or suspension in the future or that we may
be unaware of a prior attack. Cyber-threats are
sophisticated and continually evolving. We may not
implement effective systems and other measures to
effectively identify, detect, prevent, mitigate, recover
from or remediate the full diversity of cyber-threats or
improve and adapt such systems and measures as
such threats evolve and advance.
in
loss
clients,
to
systems
technology
A cybersecurity incident, or a failure to protect
and
infrastructure,
our
information and our clients and others' information
against cybersecurity threats, could result in the theft,
loss, unauthorized access to, disclosure, misuse or
alteration of information, system failures or outages or
loss of access to information. The expectations of our
clients and regulators with respect to the resiliency of
our systems and
the adequacy of our control
environment with respect to such systems has and is
expected to increase as the risk of cyber-attacks,
which is presently elevated due to the current work-
from-home environment, and the consequences of
those attacks become more pronounced. We may not
be successful in meeting those expectations or in our
efforts
identify, detect, prevent, mitigate and
respond to such cyber-incidents or for our systems to
recover in a manner that does not disrupt our ability
to provide services to our clients. The failure to
maintain an adequate technology infrastructure and
applications with effective cybersecurity controls
could impact operations, adversely affect our financial
results, result in loss of business, damage our
reputation or impact our ability to comply with
regulatory obligations, leading to regulatory fines and
sanctions. We may be required to expend significant
investigate or
additional
remediate vulnerabilities or other exposures arising
from cybersecurity threats.
to modify,
resources
to
State Street Corporation | 46
Our
computer,
communications,
data
processing, networks, backup, business continuity,
disaster recovery or other operating, information or
technology systems, facilities and activities have
suffered and in the future may suffer disruptions or
otherwise fail to operate properly or become disabled,
overloaded or damaged as a result of a number of
factors, including events that are wholly or partially
beyond our control, which can adversely affect our
ability to process transactions, provide services or
maintain systems availability, maintain information
internal controls or
security, compliance and
otherwise appropriately conduct our business
activities. For example, in addition to cyber-attacks,
there could be sudden increases in transaction or
telecommunications
data volumes, electrical or
outages, natural disasters, or employee or contractor
error or malfeasance. Third parties may also attempt
to place individuals within State Street or fraudulently
induce employees, vendors, clients or other users of
our systems to disclose sensitive information in order
to gain access to our data or that of our clients or
other parties. Any such disruptions or failures may
require us, among other things, to reconstruct lost
data (which may not be possible), reimburse our
clients' costs associated with such disruption or
failure, result in loss of client business or damage our
information technology infrastructure or systems or
those of our clients or other parties. While we have
not in the past suffered material harm or other
adverse effects from such disruptions or failures, we
may not successfully prevent, respond to or recover
from such disruptions or failures in the future, and any
such disruption or failure could adversely impact our
ability
to conduct our businesses, damage our
reputation and cause losses, potentially materially.
interact,
technology
The third parties with which we do business,
which facilitate our business activities, to whom we
outsource operations or other activities, from whom
we receive products or services or with whom we
financial
otherwise engage or
including
infrastructure and
intermediaries and
service providers, are also susceptible
the
foregoing risks (including the third parties with which
they are similarly interconnected or on which they
otherwise rely), and our or their business operations
and activities have been and may in the future be
adversely affected, perhaps materially, by failures,
terminations, errors or malfeasance by, or attacks or
constraints on, one or more financial, technology,
infrastructure
or
intermediaries with whom we or
they are
interconnected or conduct business.
government
institutions
or
to
In particular, we, like other financial services
firms, will continue to face increasing cyber-threats,
including
code,
distributed denial of service attacks, phishing attacks,
ransomware, hacker attacks, limited availability of
viruses, malicious
computer
services, unauthorized access, information security
breaches or employee or contractor error or
malfeasance that could result in the unauthorized
loss or
release, gathering, monitoring, misuse,
destruction of our, our clients' or other parties'
confidential, personal, proprietary or other information
or otherwise disrupt, compromise or damage our or
our clients' or other parties' business assets,
operations and activities. These and similar types of
threats are occurring globally with greater frequency
and intensity, and we may not anticipate or implement
effective preventative measures against, or identify
and detect one or more, such threats, particularly
because the techniques used change frequently or
may not be recognized until after they are launched.
Our status as a G-SIB likely increases the risk that we
are
In
addition, some of our service offerings, such as data
warehousing, may also increase the risk we are, and
the consequences of being, so targeted. We may be
required to expend significant additional resources to
modify, investigate or remediate vulnerabilities or
other exposures arising from cybersecurity threats.
We therefore could experience significant related
costs and legal and financial exposures, including lost
or constrained ability to provide our services or
maintain systems availability to clients, regulatory
inquiries, enforcements, actions and fines, litigation,
damage to our reputation or property and enhanced
competition.
targeted by such cybersecurity
threats.
(2)
Due to our dependence on technology and the
important role it plays in our business operations, we
are attempting to improve and update our information
technology infrastructure, among other things: (1) as
some of our systems are approaching the end of their
useful life, are redundant or do not share data without
to be more efficient, meet
reconciliation;
increasing client and regulatory security, resiliency
and other expectations and support opportunities of
growth; and (3) to enhance resiliency and maintain
business continuity. Updating these systems involves
material costs and often involves implementation,
integration and security risks, including risks that we
may not adequately anticipate
the market or
technological trends, regulatory expectations or client
needs or experience unexpected challenges that
could cause financial, reputational and operational
harm. Failing to properly respond to and invest in
changes and advancements in technology can limit
our ability to attract and retain clients, prevent us from
offering similar products and services as those
offered by our competitors, impair our ability to
maintain continuous operations, inhibit our ability to
meet regulatory requirements and subject us to
regulatory inquires.
State Street Corporation | 47
Long-term contracts expose us to pricing and
performance risk.
Our businesses may be negatively affected by
adverse publicity or other reputational harm.
We
involve
frequently enter
in our
into
long-term client
Investment Servicing
servicing contracts
business. These include outsourcing and other core
services contracts and can
information
technology development. These arrangements
generally set forth our fee schedule for the term of the
contract and, absent a change
in service
requirements, do not permit us to re-price the contract
for changes in our costs or for market pricing. The
long-term contracts for these relationships require, in
some cases, considerable up-front investment by us,
including technology and conversion costs, and carry
the risk that pricing for the products and services we
to generate
provide might not prove adequate
expected operating margins over the term of the
contracts.
The profitability of these contracts is largely a
function of our ability to accurately calculate pricing
for our services, efficiently assume our contractual
responsibilities in a timely manner, control our costs
and maintain the relationship with the client for an
adequate period of time to recover our up-front
investment. Our estimate of the profitability of these
arrangements can be adversely affected by declines
in or inaccurate projections of the assets under the
to general
clients' management, whether due
declines in the securities markets or client-specific
issues.
these
arrangements may be based on our ability to cross-
sell additional services to these clients, and we may
be unable to do so. In addition, such contracts may
permit early termination or reduction in services in the
event that certain service levels are not met, which
termination or service reduction may result in loss of
upfront investment in onboarding the client.
the profitability of
In addition,
Performance risk exists in each contract, given
our dependence on successful conversion and
implementation onto our own operating platforms of
the service activities provided. Our failure to meet
specified service levels or implementation timelines
may also adversely affect our revenue from such
arrangements, or permit early termination of the
contracts by the client. If the demand for these types
of services were to decline, we could see our revenue
decline.
Our relationship with many of our clients is
predicated on our reputation as a fiduciary and a
service provider that adheres to the highest standards
of ethics, service quality and regulatory compliance,
as well as a leading provider of the products and
services we offer. Adverse publicity, regulatory actions
or fines, litigation, operational failures, loss of client
opportunities or market share or the failure to meet
client expectations or fiduciary or other obligations
could materially and adversely affect our reputation,
our ability
to attract and retain clients or key
employees or our sources of funding for the same or
other businesses. For example, over the past decade
we have experienced adverse publicity with respect
to our indirect foreign exchange trading, and this
adverse publicity has contributed to a shift of client
volume to other foreign exchange execution methods.
Similarly, governmental actions and reputational
issues in our transition management business in the
U.K. have adversely affected our
transition
management revenue and, with criminal convictions
or guilty pleas of three of our former employees in
2018 and the deferred prosecution agreement we
entered into with the in early 2017 and the related
SEC settlement, these effects have the potential to
continue. The client invoicing matter we announced in
late 2015, and the related deferred prosecution
agreement entered into in May 2021, have had
similar effects. For additional information about these
matters, see the risk factor "Our businesses may be
adversely affected by government enforcement and
litigation."
Preserving and enhancing our reputation also
depends on maintaining systems, procedures and
controls that address known risks and regulatory
requirements, as well as our ability to timely identify,
understand and mitigate additional risks that arise
due
the
marketplaces in which we operate, the regulatory
environment and client expectations.
in our businesses and
to changes
We may not be able to protect our intellectual
property, and we are subject to claims of third-
party intellectual property rights.
Our potential inability to protect our intellectual
property and proprietary technology effectively may
allow competitors to duplicate our technology and
products and may adversely affect our ability to
compete with them. To the extent that we do not
protect our intellectual property effectively through
patents, maintaining trade secrets or other means in
all of the jurisdictions in which we operate or market
our products and services, other parties, including
former employees, with knowledge of our intellectual
property may seek to exploit our intellectual property
for their own or others' advantage. In addition, we
State Street Corporation | 48
in
in
the current competitive
respect
may infringe on claims of third-party patents, and we
may face intellectual property challenges from other
parties, including clients or service providers with
the development or
whom we may engage
implementation of other products, services or
solutions or to whose information we may have
access for limited permitted purposes but with whom
we also compete. The risk of such infringement is
“Fintech”
enhanced
environment, particularly with
to our
development of new products and services containing
significant technology elements and dependencies,
any of which could become the subject of an
infringement claim. We may not be successful in
defending against any such challenges or in obtaining
licenses to avoid or resolve any intellectual property
disputes. Third-party intellectual rights, valid or not,
may also impede our deployment of the full scope of
our products and service capabilities
in all
jurisdictions in which we operate or market our
products and services.
risk
The quantitative models we use to manage our
business may contain errors that result
in
inaccurate
inadequate
valuations
risk
and
management decisions, and lapses in disclosure
controls and procedures or internal control over
financial reporting could occur, any of which
could result in material harm.
assessments,
business
poor
or
We use quantitative models to help manage
many different aspects of our businesses. As an input
to our overall assessment of capital adequacy, we
use models to measure the amount of credit risk,
market risk, operational risk, interest rate risk and
liquidity risk we face. During the preparation of our
consolidated financial statements, we sometimes use
models to measure the value of asset and liability
positions for which reliable market prices are not
available. We also use models to support many
different types of business decisions including trading
investment, hedging, asset-and-liability
activities,
to change business
management and whether
strategy. We also use artificial
intelligence and
machine learning models to automate or enhance
the
certain business processes. Weaknesses
underlying model, inadequate model assumptions,
normal model limitations, inappropriate model use,
weaknesses in model implementation or poor data
quality, could result in unanticipated and adverse
consequences, including material loss and material
non-compliance with
requirements or
expectations. Because of our widespread usage of
models, potential weaknesses in our MRM practices
pose an ongoing risk to us.
regulatory
in
analyses
correlations.
We also use quantitative models in our risk
measurement and may fail to accurately quantify the
magnitude of the risks we face. Our measurement
rely on many assumptions and
methodologies
historical
These
and
assumptions may be incorrect, and the historical
correlations on which we rely may not continue to be
relevant. Consequently, the measurements that we
make for regulatory purposes may not adequately
capture or express the true risk profiles of our
businesses. Moreover, as businesses and markets
evolve, our measurements may not accurately reflect
this evolution. While our risk measures may indicate
sufficient capitalization, they may underestimate the
level of capital necessary to conduct our businesses.
controls and
Additionally, our disclosure
procedures may not be effective
in every
circumstance, and, similarly, it is possible we may
identify a material weakness or significant deficiency
in internal control over financial reporting. Any such
lapses or deficiencies may materially and adversely
affect our business and consolidated results of
operations or consolidated financial condition, restrict
our ability to access the capital markets, require us to
expend significant resources to correct the lapses or
regulatory or
deficiencies, expose us
legal
proceedings, subject us
fines, penalties or
judgments or harm our reputation.
to
to
Our reputation and business prospects may be
damaged if our clients incur substantial losses in
investment pools that we sponsor or manage or
are restricted in redeeming their interests in these
investment pools.
in
losses
including
investment
in collective
funds, securities
We manage assets on behalf of clients in
investment
several
forms,
finance
pools, money market
collateral pools, cash collateral and other cash
products and short-term
funds. Our
management of collective investment pools on behalf
to reputational risk and
of clients exposes us
operational losses. If our clients incur substantial
investment
receive
redemptions as in-kind distributions rather than in
cash, or experience significant under-performance
relative to the market or our competitors' products,
our reputation could be significantly harmed, which
harm could significantly and adversely affect the
prospects of our associated business units. Because
investment and operational
we often
decisions and actions over multiple investment pools
to achieve scale, we face the risk that losses, even
small losses, may have a significant effect in the
aggregate.
implement
pools,
these
State Street Corporation | 49
Within our Investment Management business,
we manage investment pools, such as mutual funds
and collective investment funds that generally offer
our clients the ability to withdraw their investments on
short notice, generally daily or monthly. This feature
requires that we manage those pools in a manner
that takes into account both maximizing the long-term
return on the investment pool and retaining sufficient
liquidity
liquidity
to meet reasonably anticipated
requirements of our clients. The
importance of
maintaining liquidity varies by product type, but it is a
particularly important feature in money market funds
and other products designed to maintain a constant
net asset value of $1.00. In the past, we have
imposed restrictions on cash redemptions from the
agency lending collateral pools, as the per-unit
market value of those funds' assets had declined
below the constant $1.00 the funds employ to effect
purchase and redemption transactions. Both the
decline of the funds' net asset value below $1.00 and
the imposition of restrictions on redemptions had a
significant client, reputational and regulatory impact
on us, and
the recurrence of such or similar
circumstances in the future could adversely impact
our consolidated results of operations and financial
condition. We have also in the past continued to
process purchase and
redemption of units of
investment products designed to maintain a constant
net asset value at $1.00 although the fair market
value of the fund’s assets were less than $1.00. If in
the future we were to continue to process purchases
and redemptions from such products at $1.00 when
the fair market value of our collateral pools' assets is
less than $1.00, we could be exposed to significant
liability.
to consolidate
If higher than normal demands for liquidity from
our clients were to occur, managing the liquidity
requirements of our collective investment pools could
become more difficult. If such liquidity problems were
to recur, our relationships with our clients may be
in certain
adversely affected, and, we could,
circumstances, be
the
required
investment pools into our consolidated statement of
condition; levels of redemption activity could increase;
and our consolidated results of operations and
business prospects could be adversely affected. In
addition, if a money market fund that we manage
were to have unexpected liquidity demands from
investors in the fund that exceeded available liquidity,
the fund could be required to sell assets to meet
those redemption requirements, and selling
the
assets held by the fund at a reasonable price, if at all,
may then be difficult.
Because of the size of the investment pools that
we manage, we may not have the financial ability or
regulatory authority to support the liquidity or other
demands of our clients. Any decision by us to provide
financial support to an investment pool to support our
reputation
in circumstances where we are not
statutorily or contractually obligated to do so could
result in the recognition of significant losses, could
adversely affect the regulatory view of our capital
levels or plans and could, in some cases, require us
to consolidate
into our
consolidated statement of condition. Any failure of the
to meet redemption requests, or under-
pools
performance of our pools relative to similar products
offered by our competitors, could harm our business
and our reputation.
investment pools
the
incur
losses arising
from our
We may
investments
investment funds,
which could be material to our consolidated
results of operations in the periods incurred.
in sponsored
for
in order
investment
these sponsored
In the normal course of business, we manage
various types of sponsored investment funds through
State Street Global Advisors. The services we provide
to
funds generate
management fee revenue, as well as servicing fees
from our other businesses. From time to time, we
may invest in the funds, which we refer to as seed
capital,
to establish a
the
performance history for newly launched strategies.
These funds may meet the definition of variable
interest entities, as defined by U.S. GAAP, and if we
are deemed to be the primary beneficiary of these
funds, we may be required to consolidate these funds
in our consolidated financial statements under U.S.
GAAP. The
investment
company accounting rules which prescribe fair value
for the underlying investment securities held by the
funds.
follow specialized
funds
funds
from
realize over
In the aggregate, we expect any financial losses
that we
these seed
time
investments to be limited to the actual amount
invested in the consolidated fund. However, in the
event of a fund wind-down, gross gains and losses of
the fund may be recognized for financial accounting
purposes in different periods during the time the fund
is consolidated but not wholly owned. Although we
expect the actual economic loss to be limited to the
amount invested, our losses in any period for financial
accounting purposes could exceed the value of our
economic interests in the fund and could exceed the
value of our initial seed capital investment.
In instances where we are not deemed to be the
primary beneficiary of the sponsored investment fund,
we do not include the funds in our consolidated
financial statements. Our risk of loss associated with
investment in these unconsolidated funds primarily
represents our seed capital investment, which could
become realized as a result of poor investment
performance. However, the amount of loss we may
recognize during any period would be limited to the
carrying amount of our investment.
State Street Corporation | 50
Climate change may increase the frequency and
severity of major weather events and could
adversely affect our business operations and
resiliency, and related impacts to us, our clients,
financial market
our
participants
our
affect
consolidated results of operations and financial
condition.
counterparties
could
and
adversely
flooding,
to strain or deplete
Our businesses and the activities of our clients,
our counterparties and financial market participants
on which we and they rely could be adversely
affected by major weather events, changing climate
patterns or other disruptions caused by climate
change affecting the regions, countries and locations
in which we or they have operations or other
interests. Potential events or disruptions of this nature
include significant
increased
rainfall,
frequency or intensity of wildfires, prolonged drought,
rising sea levels and rising heat index. These events
or disruptions, alone or in combination, also have the
potential
infrastructure and
response capabilities with respect to other weather
events, such as hurricanes and other storms. The
occurrence of any one or more of these events may
our
negatively
counterparties’
markets
participants’ (including providers of financial market
infrastructure’s) facilities, operations or personnel or
may otherwise disrupt our or their business activities
and resiliency capabilities, including our or their
provision of products and services or the value of our
or their portfolio investments, perhaps materially.
These consequences, including a reduction in asset
values affecting the levels of our AUC/A or AUM and
repricing of credit risk of our counterparties or
reflected in our portfolio assets, could materially
adversely affect our results of operations or financial
condition.
our
financial
our
or
clients’,
affect
or
result
In addition, impacts associated with climate
change-related legislative and regulatory initiatives
and the transition to a low carbon economy, including
meeting new regulatory expectations, retrofitting of
assets, purchasing carbon credits or paying carbon
taxes, may
in operational changes and
additional expenditures that could adversely affect us.
Our reputation and business prospects may also be
damaged if we do not, or are perceived not to,
effectively prepare for the potential business and
operational opportunities and risks associated with
climate change, including through the development
and marketing of effective and competitive new
products and services designed to address our
clients’ climate risk-related needs. These risks include
negative market perception, diminished sales
effectiveness
litigation
consequences associated with greenwashing claims
or driven by association with clients, industries or
regulatory
and
and
products that may be inconsistent with our stated
positions on climate change issues.
We may incur losses as a result of unforeseen
events
terrorist attacks, natural
disasters, the emergence of a new pandemic or
acts of embezzlement.
including
Acts of
terrorism, natural disasters or
the
emergence of a new pandemic could significantly
affect our business. We have instituted disaster
recovery and continuity plans to address risks from
terrorism, natural disasters and pandemic; however,
anticipating or addressing all potential contingencies
is not possible for events of this nature. Acts of
terrorism, either targeted or broad in scope, or natural
disasters could damage our physical facilities, harm
our employees and disrupt our operations. A
pandemic, or concern about a possible pandemic,
could lead to operational difficulties and impair our
ability to manage our business. Acts of terrorism,
natural disasters and pandemics could also
negatively affect our clients, counterparties and
service providers, as well as result in disruptions in
general economic activity and the financial markets.
State Street Corporation | 51
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters is located at State Street Financial Center, One Lincoln Street, Boston, Massachusetts, a 36-
story leased office building. Various divisions of our two lines of business, as well as support functions, occupy
space in this building. We occupy two buildings located in Quincy, Massachusetts, one of which we own and one of
which we lease, along with the Channel Center, another leased office building located in Boston, all of which
function as our principal facilities.
As of December 31, 2021 and 2020, we occupied a total of approximately 6.2 million and 6.5 million square
feet of office space and related facilities worldwide, respectively, of which approximately 5.2 million and 5.5 million
square feet were leased, respectively. The following table provides information regarding our principal office space
facilities:
and
related
Principal Properties(1)
U.S. and Canada:
State Street Financial Center
Channel Center
District Avenue
Heritage Drive
John Adams Building
Grafton Data Center
Westborough Data Center
Summer Street
Pennsylvania Avenue
Adelaide Street East
Europe, Middle East and Africa:
Churchill Place
Sir John Rogerson's Quay
Kirchberg
Titanium Tower
BIG
CBK
Asia Pacific:
San Dun
Tian Tang
Ecoworld 6B
Ecoworld 7
Knowledge City Salarpuria
City
Boston
Boston
Burlington
Quincy
Quincy
Grafton
Westborough
Stamford
Kansas City
Toronto
London
Dublin
Luxembourg
Gdansk
Krakow
Krakow
Hangzhou
Hangzhou
Bangalore
Bangalore
Hyderabad
State/
Country
MA
MA
MA
MA
MA
MA
MA
CT
MO
Canada
England
Ireland
Luxembourg
Poland
Poland
Poland
China
China
India
India
India
Owned/
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
(1) We lease other properties in the above regions which consist of 35 locations in Americas, 31 locations in Europe, Middle East and Africa (EMEA) and 35 locations
in APAC.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is provided under "Legal and Regulatory Matters" in Note 13 to the
consolidated financial statements in this Form 10-K, and is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
State Street Corporation | 52
INFORMATION
OFFICERS
ABOUT OUR
EXECUTIVE
The following table presents certain information
with respect to each of our executive officers as of
February 17, 2022.
Name
Age
Position
Ronald P. O'Hanley
Eric W. Aboaf
Ian W. Appleyard
65
57
57
Francisco Aristeguieta
56
Andrew J. Erickson
Kathryn M. Horgan
Bradford Hu
Louis D. Maiuri
David C. Phelan
Michael L. Richards
Cyrus Taraporevala
52
56
58
57
64
63
55
Chairman, President and Chief
Executive Officer
Executive Vice President and
Chief Financial Officer
Executive Vice President,
Global Controller and Chief
Accounting Officer
Executive Vice President and
Chief Executive Officer of State
Street Institutional Services
Executive Vice President, Chief
Productivity Officer and Head of
International
Executive Vice President and
Chief Human Resources and
Citizenship Officer
Executive Vice President and
Chief Risk Officer
Executive Vice President and
Chief Operating Officer
Executive Vice President,
General Counsel and Secretary
Executive Vice President and
Chief Administrative Officer
President and Chief Executive
Officer, State Street Global
Advisors
All executive officers are appointed by the Board
of Directors and hold office at the discretion of the
Board. No family relationships exist among any of our
directors and executive officers.
Mr. O'Hanley joined State Street in April 2015
and since January 1, 2019 has served as the
President and Chief Executive Officer. He was
appointed Chairman of the Board effective January 1,
2020. Prior to this role Mr. O'Hanley served as
President and Chief Operating Officer from November
2017
to December 2018 and served as Vice
Chairman from January 1, 2017 to November 2017.
the Chief Executive Officer and
He served as
President of State Street Global Advisors,
the
investment management arm of State Street
Corporation, from April 2015 to November 2017. Prior
to joining State Street, Mr. O'Hanley was president of
Asset Management & Corporate Services for Fidelity
Investments, a financial and mutual fund services
corporation, from 2010 to February 2014. From 1997
to 2010, Mr. O'Hanley served in various positions at
Bank of New York Mellon, a global banking and
financial services corporation, serving as president
and chief executive officer of BNY Asset Management
in Boston from 2007 to 2010.
Mr. Aboaf joined State Street in December 2016
as Executive Vice President and has served as
Executive Vice President and Chief Financial Officer
since February 2017. Prior to joining State Street, Mr.
Aboaf served as chief financial officer of Citizens
Financial Group, a
financial services and retail
banking firm, from April 2015 to December 2016, with
responsibility for all finance functions and corporate
development. From 2003 to March 2015, he served in
several senior management positions for Citigroup, a
global investment banking and financial services
corporation, including as global treasurer and as the
chief financial officer of the institutional client group,
which included the custody business.
Mr. Appleyard joined State Street in May 2018
as Executive Vice President, Global Controller and
Chief Accounting Officer. Prior to joining State Street,
Mr. Appleyard served as managing director in group
finance for Credit Suisse, a provider of financial
services, from May 2013 to April 2018 and held
several senior management positions with Credit
Suisse after joining in September 2008. Prior to
Credit Suisse, Mr. Appleyard held senior positions at
HSBC and JPMorgan.
Mr. Aristeguieta joined State Street in July 2019
and since June 2020 has served as Chief Executive
Officer of State Street Institutional Services. Prior to
this role, he served as Executive Vice President and
Chief Executive Officer of International Business from
July 2019 to June 2020. Prior to joining State Street,
Mr. Aristeguieta was Chief Executive Officer of
Citigroup Asia, an international investment banking
and financial services provider, from June 2015 to
June 2019. Prior to that role, he served as Chief
Executive Officer of Citigroup Latin America from
January 2013 to June 2015 and before that he led
Citigroup’s Transaction Services Group
in Latin
America encompassing securities servicing, trade
and cash management, and served as vice chairman
of Banco de Chile.
Mr. Erickson joined State Street in April 1991
and since June 2020 has served as Executive Vice
President, Chief Productivity Officer and head of
State Street's International business. Prior to this role,
he served as Executive Vice President and head of
the Global Services business from November 2017 to
June 2020. Prior to this role and commencing in June
2016, he served as Executive Vice President and
the
Investment Services business
head of
Americas. Prior to that role, Mr. Erickson was the
head of the Global Services business in Asia Pacific
from April 2014 to June 2016 and prior to that was
head of North Asia for Global Services from 2010 to
April 2014. Mr. Erickson has also held several other
positions within State Street during his over 25 years
with State Street.
in
Ms. Horgan joined State Street in April 2009 and
has served as Executive Vice President and Chief
Human Resources and Citizenship Officer since
March 2017. Prior to this role, she served as Chief
Operating Officer for State Street's Global Human
Resources division from 2011 to March 2017 and
State Street Corporation | 53
since 2012 has served as an Executive Vice
President. Prior to 2011, Ms. Horgan served as the
Senior Vice President of Human Resources for State
Street Global Advisors. Before joining State Street,
Ms. Horgan was the Executive Vice President of
human resources for Old Mutual Asset Management,
a
asset
management company, from 2006 to 2009.
diversified multi-boutique
global,
head of Retail Managed Accounts and Life Insurance
& Annuities for Fidelity Investments from 2012 to
October 2015. Prior to that, Mr. Taraporevala held
roles at BNY Mellon Asset
senior
Management, including executive director of North
American distribution.
leadership
PART II
Mr. Hu joined State Street in November 2021 as
Executive Vice President and has served as
Executive Vice President and Chief Risk Officer since
January 2022. Prior to joining State Street, Mr. Hu
was Chief Risk Officer of Citigroup, a global
investment
services
corporation, from January 2013 to December 2020,
and Chief Risk Officer of Citi Asia-Pacific, from
August 2008 to December 2012. Prior to that, Mr. Hu
held several senior
leadership roles at Morgan
Stanley in the Global Equity, Global Capital Markets
and Investment Banking divisions.
financial
banking
and
Mr. Maiuri joined State Street in October 2013
and since February 2019 has served as Executive
Vice President and Chief Operating Officer. Prior to
this role, Mr. Maiuri served as Executive Vice
President and head of State Street Global Markets
from June 2016 to February 2019 and head of State
Street Global Exchange from July 2015 to January
2017. From 2013 to July 2015, he led State Street's
Securities Finance division. Before joining State
Street, Mr. Maiuri served as executive vice president
and deputy chief executive officer of asset servicing
at BNY Mellon, a global banking and financial
services corporation, from 2009 to 2013.
Mr. Phelan joined State Street in 2006 as
Executive Vice President and General Counsel. In
July 2020, Mr. Phelan’s
responsibilities were
expanded to include State Street’s regulatory, security
and corporate administration functions globally. He
also serves as State Street’s Corporate Secretary.
Prior to joining State Street, Mr. Phelan served as a
senior partner at Wilmer Cutler Pickering Hale and
Dorr LLP from 1993 to 2006.
Mr. Richards joined State Street in June 2014
and since April 2020 has served as Executive Vice
President and Chief Administrative Officer. Prior to
that role, he served as Executive Vice President and
General Auditor from June 2014 to April 2020. Prior to
joining State Street, Mr. Richards was a partner at
Ernst & Young and was responsible for managing
their Banking Capital Markets practice in the United
States.
Mr. Taraporevala joined State Street in April
2016 and since November 2017 has served as
President and Chief Executive Officer of State Street
Global Advisors. He
joined State Street Global
Advisors as Executive Vice President and Global
Head of Product and Marketing. Prior to joining State
Street Global Advisors, Mr. Taraporevala was the
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS
AND
EQUITY
SECURITIES
PURCHASES OF
ISSUER
MARKET FOR REGISTRANT'S COMMON EQUITY
Our common stock is listed on the New York
Stock Exchange under the ticker symbol STT. There
were 2,196 shareholders of record as of January 31,
2022.
In January 2021, our Board authorized a share
repurchase program for the purchase of up to
$475 million of our common stock through March 31,
2021. We repurchased $475 million of our common
stock in the first quarter of 2021. In April 2021, our
Board authorized a common share repurchase
program for the repurchase of up to $425 million of
our common stock
in
compliance with the limit set by the Federal Reserve.
We repurchased $425 million of our common stock in
the second quarter of 2021. In July 2021, our Board
authorized a share repurchase program for the
repurchase of up to $3.0 billion of our common stock
through the end of 2022.
through June 30, 2021,
In September 2021, we completed a public
offering of approximately 21.7 million shares of our
common stock. The offering price was $87.60 per
share and net proceeds
totaled approximately
$1.9 billion. We expect to use these net proceeds to
finance our planned acquisition of the BBH Investor
Services business.
In connection with our planned acquisition of the
BBH
Investor Services business, we did not
repurchase any common stock during the third and
fourth quarters of 2021 under the common share
repurchase plan approved by our Board in July 2021,
and we do not intend to repurchase any common
stock during the first quarter of 2022. We intend to
resume our common share repurchases during the
second quarter of 2022
Stock purchases may be made using various
types of mechanisms,
including open market
purchases or transactions off market, and may be
made under Rule 10b5-1 trading programs. The
timing of stock purchases, types of transactions and
number of shares purchased will depend on several
factors,
including market conditions, our capital
position, our financial performance and investment
opportunities. Our common stock purchase program
does not have specific price targets and may be
State Street Corporation | 54
suspended at any time. We may employ third-party
broker/dealers to acquire shares on the open market
in connection with our common stock purchase
programs. The common stock purchase program
does not have specific price targets and may be
suspended at any time.
Additional information about our common stock,
to
including Board authorization with
purchases by us of our common stock, is provided
under "Capital"
in our
Management's Discussion and Analysis and in Note
15 to the consolidated financial statements in this
Form 10-K, and is incorporated herein by reference.
in “Financial Condition”
respect
RELATED STOCKHOLDER MATTERS
As a bank holding company, our Parent
Company is a legal entity separate and distinct from
its principal banking subsidiary, State Street Bank,
and its non-banking subsidiaries. The right of the
Parent Company to participate as a shareholder in
any distribution of assets of State Street Bank upon
its liquidation, reorganization or otherwise is subject
to the prior claims by creditors of State Street Bank,
including obligations for federal funds purchased and
securities sold under repurchase agreements and
deposit liabilities.
to
the provisions of
Payment of dividends by State Street Bank is
subject
the Massachusetts
banking law, which provide that State Street Bank's
Board of Directors may declare, from State Street
Bank's "net profits," as defined below, cash dividends
annually, semi-annually or quarterly (but not more
frequently) and can declare non-cash dividends at
any time. Under Massachusetts banking law, for
purposes of determining
the amount of cash
dividends that are payable by State Street Bank, “net
profits” is defined as an amount equal to the
remainder of all earnings from current operations plus
actual recoveries on loans and investments and other
assets, after deducting from the total thereof all
current operating expenses, actual losses, accrued
dividends on preferred stock, if any, and all federal
and state taxes.
No dividends may be declared, credited or paid
so long as there is any impairment of State Street
Bank's capital stock. The approval of
the
Massachusetts Commissioner of Banks is required if
the total of all dividends declared by State Street
Bank in any calendar year would exceed the total of
its net profits for that year combined with its retained
net profits for the preceding two years, less any
required transfer to surplus or to a fund for the
retirement of any preferred stock.
regulations,
Under Federal Reserve
the
approval of the Federal Reserve would be required
for the payment of dividends by State Street Bank if
the total amount of all dividends declared by State
Street Bank in any calendar year, including any
proposed dividend, would exceed the total of its net
income for such calendar year as reported in State
Street Bank's Consolidated Reports of Condition and
Income for a Bank with Domestic and Foreign Offices
Only - FFIEC 031, commonly referred to as the “Call
Report,” as submitted through the Federal Financial
Institutions Examination Council and provided to the
Federal Reserve, plus its “retained net income” for
the preceding
these
purposes, “retained net income,” as of any date of
determination, is defined as an amount equal to State
Street Bank's net income (as reported in its Call
Reports for the calendar year in which retained net
income is being determined) less any dividends
declared during such year. In determining the amount
of dividends that are payable, the total of State Street
Bank's net income for the current year and its
retained net income for the preceding two calendar
years is reduced by any net losses incurred in the
current or preceding two-year period and by any
required transfers to surplus or to a fund for the
retirement of preferred stock.
two calendar years. For
Prior Federal Reserve approval also must be
obtained if a proposed dividend would exceed State
Street Bank's “undivided profits” (retained earnings)
as reported in its Call Reports. State Street Bank may
include in its undivided profits amounts contained in
its surplus account, if the amounts reflect transfers of
undivided profits made in prior periods and if the
Federal Reserve's approval for the transfer back to
undivided profits has been obtained.
Under the PCA provisions adopted pursuant to
the FDIC Improvement Act of 1991, State Street Bank
may not pay a dividend when it is deemed, under the
PCA framework, to be under-capitalized, or when the
payment of the dividend would cause State Street
Bank to be under-capitalized. If State Street Bank is
under-capitalized for purposes of the PCA framework,
it must cease paying dividends for so long as it is
deemed to be under-capitalized. Once earnings have
begun to improve and an adequate capital position
has been restored, dividend payments may resume in
accordance with federal and state statutory limitations
and guidelines.
State Street Corporation | 55
For a discussion of the role of the Federal Reserve and its regulations in connection with the Parent
Company’s capital planning and dividend practices, see “Capital Planning, Stress Tests and Dividends” in
“Supervision and Regulation” in “Item 1. Business”. Information about dividends declared by our Parent Company
and dividends from our subsidiary banks is provided under "Capital" in “Financial Condition” in our Management's
Discussion and Analysis, and in Note 15 to the consolidated financial statements in this Form 10-K, and is
incorporated herein by reference. Future dividend payments of State Street Bank and our non-banking subsidiaries
cannot be determined at this time. In addition, refer to “Capital Planning, Stress Tests and Dividends” in
"Supervision and Regulation" in Business in this Form 10-K and the risk factor “Our business and capital-related
activities, including our ability to return capital to shareholders and repurchase our capital stock, may be adversely
affected by our implementation of regulatory capital and liquidity standards that we must meet or in the event our
capital plan or post-stress capital ratios are determined to be insufficient as a result of regulatory capital stress
testing” in Risk Factors in this Form 10-K.
Information about our equity compensation plans is in Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters, and in Note 18 to the consolidated financial statements in this Form
10-K, and is incorporated herein by reference.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The graph presented below compares the cumulative total shareholder return on our common stock to the
cumulative total return of the S&P 500 Index, the S&P Financial Index and the KBW Bank Index over a five-year
period. The cumulative total shareholder return assumes the investment of $100 in our common stock and in each
index on December 31, 2016. It also assumes reinvestment of common stock dividends.
The S&P Financial Index is a publicly available, capitalization-weighted index, comprised of 67 of the Standard
& Poor’s 500 companies, representing 26 diversified financial services companies, 22 insurance companies and 19
banking companies. The KBW Bank Index is a modified cap-weighted index consisting of 24 exchange-listed
stocks, representing national money center banks and leading regional institutions. The Peer Group is composed of
The Bank of New York Mellon Corporation and Northern Trust Corporation. The Peer Group is expected to replace
either or both of the KBW Bank Index or the S&P Financial Index in future periods as we believe it reflects a more
useful comparison of our most direct peer group.
State Street Corporation
S&P 500 Index
S&P Financial Index
KBW Bank Index
Peer group
2016
2017
2018
2019
2020
2021
$
100 $
100
100
100
100
128 $
122
122
119
115
84 $
116
106
98
101
109 $
153
140
133
117
104 $
181
138
119
104
136
233
186
165
142
The table presented below compares the cumulative total shareholder return on our common stock to the
cumulative total return of the S&P 500 Index, the S&P Financial Index, the KBW Bank Index and a Peer Group over
a one-year, three-year and five-year period.
State Street Corporation
S&P 500 Index
S&P Financial Index
KBW Bank Index
Peer group
1 year
3 years
5 years
31 %
29
35
38
38
61 %
100
75
69
40
36 %
133
86
65
42
State Street Corporation | 56
Year EndedTotal Shareholder Return($)Comparison of Five-Year Cumulative Total Shareholder ReturnState Street CorporationS&P 500 IndexS&P Financial IndexKBW Bank IndexPeer Group20162017201820192020202175100125150175200225250275
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
As of December 31, 2021, we had consolidated
total assets of $314.62 billion, consolidated total
total
deposits of $255.04 billion, consolidated
shareholders'
and
billion
of
approximately 39,000 employees. We operate in
more
than 100 geographic markets worldwide,
including the U.S., Canada, Latin America, Europe,
the Middle East and Asia.
$27.36
equity
Our operations are organized into two lines of
business,
Investment
Investment Servicing and
Management, which are defined based on products
and services provided. For the description of our lines
of business, refer to "Lines of Business” in Item 1 in
this Form 10-K.
For financial and other information about our
lines of business,
“Line of Business
to
Information” in this Management's Discussion and
Analysis and Note 24 to the consolidated financial
statements in this Form 10-K.
refer
This Management's Discussion and Analysis
should be read in conjunction with the consolidated
financial statements and accompanying notes to
consolidated financial statements in this Form 10-K.
Certain previously reported amounts presented in this
Form 10-K have been reclassified to conform to
current-period presentation.
our
We
prepare
consolidated
financial
statements
in conformity with U.S. GAAP. The
preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates
and assumptions
its application of certain
accounting policies that materially affect the reported
amounts of assets, liabilities, equity, revenue and
expenses.
in
The significant accounting policies that require
us to make judgments, estimates and assumptions
that are difficult, subjective or complex about matters
that are uncertain and may change in subsequent
periods include:
•
•
•
•
accounting for fair value measurements;
allowance for credit losses;
impairment of goodwill and other intangible
assets; and
contingencies.
These significant accounting policies require the
most subjective or complex
judgments, and
underlying estimates and assumptions could be
subject to revision as new information becomes
these
available. Additional
information about
significant accounting policies
“Significant
Accounting
Management's Discussion and Analysis.
is
Estimates”
included under
this
in
Certain financial information provided in this
Form 10-K, including this Management's Discussion
and Analysis, is prepared on both a U.S. GAAP, or
reported basis, and a non-GAAP basis, including
certain non-GAAP measures used in the calculation
of identified regulatory ratios. We measure and
compare certain financial information on a non-GAAP
basis, including information that management uses in
evaluating our business and activities. Non-GAAP
financial information should be considered in addition
to, and not as a substitute for or superior to, financial
information prepared in conformity with U.S. GAAP.
Any non-GAAP financial information presented in this
Form 10-K, including this Management’s Discussion
and Analysis, is reconciled to its most directly
comparable currently applicable regulatory ratio or
U.S. GAAP-basis measure. We further believe that
our presentation of fully taxable-equivalent NII, a non-
GAAP measure, which reports non-taxable revenue,
such as interest income associated with tax-exempt
investment securities, on a fully taxable-equivalent
basis, facilitates an investor's understanding and
analysis of our underlying financial performance and
trends.
This Management's Discussion and Analysis
contains statements that are considered "forward-
looking statements" within the meaning of U.S.
securities laws. Forward-looking statements include
statements about our goals and expectations
regarding our business,
financial and capital
condition, results of operations, strategies, cost
savings and transformation initiatives, investment
portfolio performance, dividend and stock purchase
programs, outcomes of legal proceedings, market
growth, acquisitions (including, without limitation, our
planned acquisition of Brown Brothers Harriman's
Investor Services business),
joint ventures and
divestitures, client growth and new technologies,
services and opportunities, as well as industry,
governmental,
regulatory, economic and market
trends, initiatives and developments, the business
environment and other matters that do not relate
strictly
forward-looking
statements involve certain risks and uncertainties
which could cause actual results to differ materially.
We undertake no obligation to revise the forward-
looking statements contained in this Management's
Discussion and Analysis to reflect events after the
facts. These
to historical
State Street Corporation | 57
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
time we file this Form 10-K with the SEC. Additional
information about forward-looking statements and
in
risks and uncertainties
related
"Forward-Looking Statements",
Factors
Summary" and "Risk Factors" in this Form 10-K.
is provided
"Risk
regulatory standards,
We provide additional disclosures required by
including
applicable bank
supplemental qualitative and quantitative information
with respect to regulatory capital (including market
risk associated with our trading activities) and the
liquidity coverage ratio, summary results of State
Street-run stress tests which we conduct under the
Dodd-Frank Act and resolution plan disclosures
required under the Dodd-Frank Act. These additional
disclosures are available on the “Investor Relations”
section of our website under "Filings and Reports."
In
this Form 10-K, we
reference various
information and materials available on our corporate
website. We have included our website address in
this report as an inactive textual reference only.
Information on our website is not incorporated by
reference in this Form 10-K.
We use acronyms and other defined terms for
certain business terms and abbreviations, as defined
on the acronyms list and glossary in this Form 10-K.
OVERVIEW OF FINANCIAL RESULTS
TABLE 1: OVERVIEW OF FINANCIAL RESULTS
(Dollars in millions, except per
share amounts)
Total fee revenue
Net interest income
Total other income
Total revenue
Provision for credit losses(1)
Total expenses
Income before income tax
expense
Income tax expense
Years Ended December 31,
2021
2020
2019
$ 10,012
$ 9,499
$ 9,147
1,905
110
2,200
4
2,566
43
12,027
11,703
11,756
(33)
8,889
3,171
478
88
8,716
2,899
479
10
9,034
2,712
470
Net income
$ 2,693
$ 2,420
$ 2,242
Adjustments to net income:
Dividends on preferred stock(2) $
Earnings allocated to
participating securities(3)
Net income available to common
shareholders
(119)
$
(162)
$
(232)
(2)
(1)
(1)
$ 2,572
$ 2,257
$ 2,009
Earnings per common share:
Basic
Diluted
$
7.30
$
6.40
$
5.43
7.19
6.32
5.38
Average common shares
outstanding (in thousands):
Basic
Diluted
352,565
352,865
369,911
357,962
357,106
373,666
Cash dividends declared per
common share
$
2.18
$
2.08
$
1.98
Return on average common equity
10.7 %
10.0 %
9.4 %
Pre-tax margin
Return on average assets
Common dividend payout
Average common equity to
average total assets
26.4
0.9
30.3
8.0
24.8
0.9
32.9
8.3
23.1
1.0
36.8
9.6
(1) We adopted ASU 2016-13, Financial Instruments-Credit Losses (ASC 326):
Measurement of Credit Losses on Financial Instruments, on January 1, 2020.
(2) Additional information about our preferred stock dividends is provided in Note 15
to the consolidated financial statements in this Form 10-K.
(3) Represents the portion of net income available to common equity allocated to
participating securities, composed of unvested and
fully vested SERP
(Supplemental executive retirement plans) shares and fully vested deferred
director stock awards, which are equity-based awards that contain non-forfeitable
rights to dividends, and are considered to participate with the common stock in
undistributed earnings.
State Street Corporation | 58
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following “Financial Results and Highlights”
section provides information related to significant
events, as well as highlights of our consolidated
financial results for the year ended December 31,
2021 presented in Table 1: Overview of Financial
information about our
Results. More detailed
the
results,
consolidated
comparison of our financial results for the year ended
December 31, 2021 to those for the year ended
December 31, 2020, is provided under “Consolidated
Results of Operations”, "Line of Business Information"
and "Capital" which follows these sections, as well as
in our consolidated financial statements in this Form
10-K.
including
financial
◦
Positive fee operating leverage of
3.4% points in 2021. Fee operating
leverage represents the difference
between the percentage change in
total fee revenue and the percentage
change in total expenses, in each
case relative to the prior year period.
•
In September 2021, we announced that we
had entered into a definitive agreement to
acquire the BBH Investor Services business
for $3.5 billion in cash. This announced
acquisition is subject to regulatory approvals
and the satisfaction or waiver of other closing
conditions.
The comparison of our financial results for the
year ended December 31, 2020 to those for the year
ended December 31, 2019
in our
Management's Discussion and Analysis in the Annual
Report on Form 10-K for the fiscal year ended
December 31, 2020 filed with the SEC on February
19, 2021.
included
is
In this Management’s Discussion and Analysis,
where we describe the effects of changes in foreign
currency translation, those effects are determined by
applying applicable weighted average FX rates from
the relevant 2020 period to the relevant 2021 period
results.
Financial Results and Highlights
•
2021 financial performance:
EPS of $7.19 in 2021 increased 14%
compared to $6.32 in 2020.
Total fee revenue was up 5% in 2021
compared to 2020, including 1% due
to currency translation.
Servicing and management
fee
revenues were up 7% and 9%,
respectively, in 2021 compared to
2020.
In 2021, return on equity of 10.7%
increased
in 2020,
from 10.0%
primarily due to an increase in net
common
income
shareholders. Pre-tax margin of
26.4% in 2021 increased from 24.8%
in 2020, primarily due to an increase
in total revenue.
available
to
◦
◦
◦
◦
◦
the BBH
◦ We expect to finance the planned
acquisition of
Investor
Services business primarily with the
proceeds of $1.9 billion
from a
common stock offering completed in
September
temporary
suspension of repurchases of our
common stock and with cash on
hand.
2021,
a
•
During 2021, our business and financial
results continued to reflect effects of the
COVID-19 pandemic:
◦
Approximately 79% of our employees
globally continued to work remotely
as of December 31, 2021.
◦ We continued to experience high
in 2021
levels of client deposits
amidst
Federal Reserve's
expansionary monetary policy and
growth in AUC/A.
the
Revenue
•
•
revenue
increased 3%
to 2020. Total
in 2021
Total
compared
revenue
increased 5% in 2021 compared to 2020,
driven by increases across servicing fees,
management fees, securities finance and
software and processing fees.
fee
Servicing fee revenue increased 7% in 2021
compared to 2020, primarily due to higher
average equity market levels, client activity
and flows, and net new business, partially
offset by normal pricing headwinds.
Positive operating leverage of 0.8%
points in 2021. Operating leverage
represents the difference between
the percentage change
total
revenue and the percentage change
in
in each case
relative to the prior year period.
total expenses,
in
• Management fee revenue increased 9% in
2021 compared to 2020, primarily due to
higher average equity market levels and net
inflows
from ETFs, partially offset by a
previously reported idiosyncratic institutional
client asset reallocation expected
to be
primarily reflected in 2022, and higher money
market fee waivers.
State Street Corporation | 59
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
▪
•
▪
Foreign exchange trading services revenue
decreased 11% in 2021 compared to 2020,
primarily due to lower FX volatility, as
compared to the high levels of volatility
experienced in 2020 due to the COVID-19
pandemic, partially offset by higher client FX
volumes.
Securities finance revenue increased 17% in
2021 compared to 2020, reflecting higher
client securities
loan balances and new
business wins in enhanced custody, partially
offset by lower spreads.
Software and processing
revenue
increased 7% in 2021 compared to 2020,
primarily due to higher CRD revenues.
fees
• NII decreased 13% in 2021 compared to
2020, primarily due
investment
portfolio yields, partially offset by growth in
the investment portfolio and deposits, and
higher loan balances.
lower
to
Provision for Credit Losses
•
There was a $33 million release of credit
reserves in 2021, compared to an expense of
$88 million in 2020, which is primarily driven
by observed and expected improvements in
both credit quality and economic outlook.
Expenses
•
increased 2%
Total expenses
in 2021
compared to 2020, primarily reflecting the
items and currency
impact of notable
translation. Currency translation increased
expenses by 1% in 2021 compared to 2020.
Notable items
•
The impact of notable items in 2021 includes:
◦
◦
◦
◦
Services
$53 million gain on the sale of a
share of our Wealth
majority
(WMS)
Management
business, recorded in other income;
$58 million gain on
sale of
investment securities related to a
one-time transfer of LIBOR and Euro
Interbank Offered Rate
based
securities from HTM to AFS, and the
subsequent sale of the majority of
those securities in 2021;
release
repositioning
net
of
approximately $3 million, consisting
of $32 million release of previously
accrued severance charges, partially
offset by $29 million of occupancy
charges
footprint
optimization;
deferred
acceleration
compensation
of
expense
approximately
related
to
◦
◦
◦
$147 million associated with an
amendment of certain outstanding
incentive
cash
deferred
compensation awards;
acquisition and restructuring costs of
approximately $65 million, of which
$53 million related to CRD and
$13 million related to our planned
acquisition of
Investor
Services business;
the BBH
net legal and other expenses of
approximately $18 million, including
$20 million in information systems
and communications, $8 million in
transaction processing services and
$1 million in other expenses, partially
offset by a legal accrual release of
approximately $11 million associated
the
with a settlement related
invoicing matter; and
to
costs of $5 million due to the partial
redemption of outstanding Series F
non-cumulative perpetual preferred
stock
the difference
between the redemption value and
the net carrying value of
the
preferred stock.
representing
•
impact of
The
includes:
notable
items
in 2020
◦
◦
◦
◦
charges
$133
$82 million
of
repositioning
million,
approximately
consisting
of
compensation and employee benefits
expenses and $51 million of
occupancy costs;
of
acquisition and restructuring costs of
approximately $50 million, primarily
related to CRD;
a $9 million accrual release; and
to
costs of $9 million due
the
redemption of all outstanding Series
C non-cumulative perpetual preferred
the difference
stock
between the redemption value and
the net carrying value of
the
preferred stock.
representing
State Street Corporation | 60
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AUC/A and AUM
•
•
AUC/A of $43.68 trillion increased 13% as of
December 31, 2021, compared to December
31, 2020, primarily due to higher market
levels, client flows and net new business
growth. In 2021, newly announced asset
servicing mandates
totaled approximately
trillion, with State Street AlphaSM
$3.52
representing a large proportion of the wins.
Servicing assets remaining to be installed in
future
approximately
$2.80 trillion as of December 31, 2021.
periods
totaled
AUM of $4.14 trillion increased 19% as of
December 31, 2021, compared to December
31, 2020, primarily due to higher market
levels and net inflows, primarily from ETFs.
Capital
•
In 2021, we returned a total of approximately
$1.7 billion to our shareholders in the form of
common stock dividends paid and share
repurchases.
• We declared aggregate common stock
dividends of $2.18 per share, totaling $779
million in 2021 compared to $2.08 per share,
totaling $734 million in 2020.
•
•
•
In 2021, we purchased an aggregate of
11.2 million shares of common stock, under
share repurchase programs approved by our
Board, at an average per share cost of
$80.00
of
approximately $900 million.
aggregate
cost
and
an
In July 2021, our Board authorized a common
share repurchase plan of up to $3.0 billion of
our common stock through the end of 2022;
however, as noted above, in connection with
our planned acquisition of the BBH Investor
Services business, we did not repurchase
any common stock during the third and fourth
quarters of 2021. We do not intend to
repurchase any common stock during the first
quarter of 2022. We intend to resume our
common share
the
second quarter of 2022.
repurchases during
In September 2021, we completed a public
offering of approximately 21.7 million shares
of our common stock. The offering price was
$87.60 per share and net proceeds totaled
approximately $1.9 billion. As noted above,
we expect to use these net proceeds to
finance our planned acquisition of the BBH
Investor Services business.
• Our
standardized CET1
ratio
increased to 14.3% as of December 31,
2021, compared to 12.3% as of December
capital
31, 2020, primarily due to higher retained
earnings and the issuance of common stock
in September 2021. Our Tier 1 leverage ratio
decreased to 6.1% as of December 31, 2021
compared to 6.4% as of December 31, 2020.
We expect both our CET1 capital and Tier 1
leverage ratios to be at or near the lower end
of our
ranges of 10-11% and
5.25-5.75%, respectively, for the first half of
2022, assuming a closing of our planned
acquisition of the BBH Investor Services
business during that period and inclusive of
the implementation of SA-CCR.
target
outstanding
• On March 15, 2021, we redeemed an
aggregate of $500 million, or 5,000 of the
7,500
our
noncumulative perpetual preferred stock,
Series F, for cash at a redemption price of
$100,000 per share (equivalent to $1,000 per
depositary share) plus all declared and
unpaid dividends.
shares,
of
Debt Issuances
• On March 3, 2021, we issued $850 million
aggregate principal amount of 2.200% Senior
Subordinated Notes due 2031.
• On November 18, 2021, we
issued
$500 million aggregate principal amount of
1.684% Fixed-to-Floating Rate Senior Notes
due 2027.
• On February 7, 2022, we issued $300 million
fixed-to-
aggregate principal amount of
floating
rate senior notes due 2026,
$650 million aggregate principal amount of
fixed-to-floating rate senior notes due 2028
and $550 million aggregate principal amount
of fixed-to-floating rate senior notes due
2033.
State Street Corporation | 61
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for 2021 compared to 2020 and should be read
in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial
statements in this Form 10-K.
Total Revenue
TABLE 2: TOTAL REVENUE
(Dollars in millions)
Fee revenue:
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income:
Interest income
Interest expense
Net interest income
Other income:
Gains (losses) related to investment securities, net
Other income
Total other income
Total revenue
nm Not meaningful
Fee Revenue
Years Ended December 31,
2021
2020
2019
% Change 2021
vs. 2020
% Change 2020
vs. 2019
$
5,549
$
5,167
$
2,053
1,211
416
783
10,012
1,908
3
1,905
57
53
110
1,880
1,363
356
733
9,499
2,575
375
2,200
4
—
4
5,074
1,824
1,058
471
720
9,147
3,941
1,375
2,566
(1)
44
43
$
12,027
$
11,703
$
11,756
7 %
9
(11)
17
7
5
(26)
(99)
(13)
nm
nm
nm
3
2 %
3
29
(24)
2
4
(35)
(73)
(14)
nm
nm
nm
—
Table 2: Total Revenue, provides the breakout of fee revenue for the years ended December 31, 2021, 2020
and 2019. Servicing and management fees collectively made up approximately 76%, 74% and 75% of the total fee
revenue in 2021, 2020 and 2019, respectively.
Servicing Fee Revenue
Generally, our servicing fee revenues are affected by several factors including changes in market valuations,
client activity and asset flows, net new business and the manner in which we price our services. We provide a range
of services to clients, including core custody, accounting, reporting and administration, and middle office services.
The nature and mix of services provided and the asset classes for which the services are performed affect our
servicing fees. The basis for fees will differ across regions and clients.
Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels and the geographic and product mix of our AUC/A.
Increases or decreases in market valuations have a corresponding impact on the level of our AUC/A and servicing
fee revenues, though the degree of impact will vary depending on asset types and classes and geography of assets
held within our clients’ portfolios. For certain asset classes where the valuation process is more complex, including
alternative investments, or where our valuation is dependent on third party information, AUC/A is reported on a lag,
typically one-month. For those asset classes, the impact of market levels on our reported AUC/A does not reflect
current period-end market levels.
Over the five years ended December 31, 2021, we estimate that worldwide market valuations impacted our
servicing fee revenues by approximately 3% on average with a range of 0% to 7% annually and approximately 7%
and 2% in 2021 and 2020, respectively. See Table 3: Daily Averages, Month-End Averages and Year-End Equity
Indices for selected indices. While the specific indices presented are indicative of general market trends, the asset
types and classes relevant to individual client portfolios can and do differ, and the performance of associated
relevant indices and of client portfolios can therefore differ from the performance of the indices presented. In
addition, our asset classifications may differ from those industry classifications presented.
Assuming that all other factors remain constant, including client activity, asset flows and pricing, we estimate,
using relevant information as of December 31, 2021 that a 10% increase or decrease in worldwide equity
valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated,
would result in a corresponding change in our total servicing fee revenues, on average and over multiple quarters,
State Street Corporation | 62
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
of approximately 3%. We estimate, similarly assuming all other factors remain constant and using relevant
information as of December 31, 2021, that changes in worldwide fixed income markets, which on a weighted
average basis and over time are typically less volatile than worldwide equity markets, have a significantly smaller
impact on our servicing fee revenues on average and over time.
TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND YEAR-END EQUITY INDICES(1)
S&P 500®
MSCI EAFE®
MSCI® Emerging Markets
Daily Averages of Indices
Month-End Averages of Indices
Year-End Indices
Years Ended December 31,
Years Ended December 31,
Years Ended December 31,
2021
2020
% Change
2021
2020
% Change
2021
2020
% Change
4,273
2,289
1,315
3,218
1,854
1,059
33 %
23
24
4,279
2,272
1,303
3,217
1,841
1,052
33 %
23
24
4,766
2,336
1,232
3,756
2,148
1,291
27 %
9
(5)
(1) The index names listed in the table are service marks of their respective owners.
TABLE 4: YEAR-END DEBT INDICES(1)
Barclays Capital U.S. Aggregate Bond Index®
Barclays Capital Global Aggregate Bond Index®
(1) The index names listed in the table are service marks of their respective owners.
Client Activity and Asset Flows
As of December 31,
2021
2020
% Change
2,355
532
2,392
559
(2) %
(5)
Client activity and asset flows are impacted by the number of transactions we execute on behalf of our clients,
including FX settlements, equity and derivative trades, and wire transfer activity, as well as actions by our clients to
change the asset class in which their assets are invested. Our servicing fee revenues are impacted by a number of
factors, including transaction volumes, asset levels and asset classes in which funds are invested, as well as
industry trends associated with these client-related activities.
Our clients may change the asset classes in which their assets are invested, based on their market outlook,
risk acceptance tolerance or other considerations. Over the five years ended December 31, 2021, we estimate that
client activity and asset flows, together, impacted our servicing fee revenues by approximately 0% on average with
a range of (1)% to 2% annually and approximately 0% and 2% in 2021 and 2020, respectively. See Table 5: Industry
Asset Flows for selected asset flow information. While the asset flows presented are indicative of general market
trends, the asset types and classes relevant to individual client portfolios can and do differ, and our flows may differ
from those market trends. In addition, our asset classifications may differ from those industry classifications
presented.
TABLE 5: INDUSTRY ASSET FLOWS
(In billions)
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3)
Years Ended December 31,
2021
2020
Long-Term Funds(4)
Money Market
Exchange-Traded Fund
Total Flows
Europe - Morningstar Direct Market Data(1)(2)(5)
Long-Term Funds(4)
Money Market
Exchange-Traded Fund
Total Flows
$
$
$
$
564.2 $
423.8
543.4
1,531.4 $
801.0 $
(56.0)
183.7
928.7 $
(88.3)
676.1
271.6
859.4
414.4
283.1
113.7
811.2
(1) Industry data is provided for illustrative purposes only. It is not intended to reflect our activity or our clients' activity and is indicative of only segments of the entire industry.
(2) Source: Morningstar. The data includes long-term mutual funds, ETFs and money market funds. Mutual fund data represents estimates of net new cash flow, which is new sales minus
redemptions combined with net exchanges, while ETF data represents net issuance, which is gross issuance less gross redemptions. Data for Fund of Funds, Feeder funds and Obsolete
funds were excluded from the series to prevent double counting. Data is from the Morningstar Direct Asset Flows database.
(3) The year ended December 31, 2021 data for North America (US domiciled) includes Morningstar direct actuals for January 2021 through November 2021 and Morningstar direct
estimates for December 2021.
(4) The long-term fund flows reported by Morningstar direct in North America are composed of US domiciled market flows mainly in Equities, Allocation and Fixed-Income asset classes. The
long-term fund flows reported by Morningstar direct in EMEA are composed of the European market flows mainly in Equities, Allocation and Fixed-Income asset classes.
(5) The year ended December 31, 2021 data for Europe is on a rolling twelve month basis for December 2020 through November 2021, sourced by Morningstar.
State Street Corporation | 63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net New Business
Over the five years ended December 31, 2021,
net new business, which includes business both won
and lost, has affected our servicing fee revenues by
approximately 1% on average with a range of 0% to
3% annually and approximately 1% and 0% in 2021
and 2020, respectively. Gross investment servicing
mandates were $3.52 trillion in 2021 and $1.8 trillion
per year on average over the past five years. Over
the five years ended December 31, 2021, gross
annual investment servicing mandates ranged from
$750 billion to $3.5 trillion.
Servicing fee revenue associated with new
servicing mandates may vary based on the breadth of
services provided, the time required to install the
assets, and the types of assets installed.
Revenues associated with new mandates are
not reflected in our servicing fee revenue until the
assets have been installed. Our installation timeline,
in general, can range from 6 to 36 months, with the
average installation timeline being approximately 9 to
12 months over the past 2 years. Our more complex
installations,
including new State Street Alpha
mandates, will generally be on the longer end of that
range. With respect to the current asset mandates of
approximately $2.80 trillion that are yet to be installed
as of December 31, 2021, we expect the conversion
will occur over the coming 12 to 24 months.
Pricing
The industry in which we operate has historically
faced pricing pressure, and our servicing
fee
revenues are also affected by such pressures today.
Consequently, no assumption should be drawn as to
future revenue run rate from announced servicing
wins, as the amount of revenue associated with AUC/
A can vary materially. On average, over the five years
ended December 31, 2021, we estimate that pricing
pressure with respect to existing clients has impacted
our servicing fees by approximately (2)% annually,
with the impact ranging from (1)% to (4)% in any
given year, and approximately (2)% in both 2021 and
2020. Pricing concessions can be a part of a contract
renegotiation with a client including terms that may
benefit us, such as extending the term of our
relationship with the client, expanding the scope of
services that we provide or reducing our dependency
on manual processes through the standardization of
the services we provide. The timing of the impact of
additional
anticipated
additional services, and the amount of revenue
generated, may differ from expectations due to the
impact of pricing concessions on existing services
due to the necessary time required to onboard those
new services, the nature of those services and client
generated
revenue
by
investment practices and other factors. These same
market pressures also impact the fees we negotiate
when we win business from new clients.
In order to offset the typical client attrition and
normal pricing headwinds, we estimate that we need
at least $1.5 trillion of new AUC/A per year; although,
notwithstanding increases in AUC/A, servicing fees
remain subject to several factors, including changes
in market valuations, client activity and asset flows,
the manner in which we price our services, the nature
of the assets being serviced and the type of services
and the other factors described in this Form 10-K.
Historically, and based on an indicative sample
of revenue, we estimate that approximately 55%, on
average, of our servicing fee revenues have been
variable due to changes in asset valuations including
changes
in daily average valuations of AUC/A;
another 15%, on average, of our servicing fees are
impacted by the volume of activity in the funds we
serve; and the remaining approximately 30% of our
servicing fees tend not to be variable in nature nor
impacted by market fluctuations or values.
Based on the impact of the above, client activity
and asset flows, net new business and pricing, noted
drivers of our servicing
fee revenue will vary
depending on the mix of products and services we
provide to our clients. The full impact of changes in
market valuations and the volume of activity in the
funds may not be fully reflected in our servicing fee
revenues in the periods in which the changes occur,
particularly in periods of higher volatility.
Servicing fees, as presented in Table 2: Total
Revenue, increased 7% in 2021 compared to 2020
primarily due to higher average equity market levels,
client activity and flows, and net new business,
partially offset by normal pricing headwinds. FX rates
impacted servicing fees positively by 1% in 2021
relative to 2020 and 0.4% in 2020 relative to 2019.
Servicing fees generated outside the U.S. were
approximately 48% of total servicing fees in 2021,
compared to approximately 47% in each of 2020 and
2019.
State Street Corporation | 64
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 6: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT(1)(2)
(In billions)
December 31, 2021
December 31, 2020
December 31, 2019
Collective funds, including ETFs
$
15,722 $
13,387 $
Mutual funds
Pension products
Insurance and other products
11,575
8,443
7,938
9,810
7,594
8,000
Total
$
43,678 $
38,791 $
11,986
8,316
6,919
7,137
34,358
% Change
2021 vs. 2020
% Change
2020 vs. 2019
17 %
18
11
(1)
13
12 %
18
10
12
13
TABLE 7: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY ASSET CLASS(2)
(In billions)
Equities
Fixed-income
Short-term and other investments
Total
December 31, 2021
December 31, 2020
December 31, 2019
% Change
2021 vs. 2020
% Change
2020 vs. 2019
$
$
25,974 $
21,626 $
12,587
5,117
12,834
4,331
43,678 $
38,791 $
19,301
10,766
4,291
34,358
20 %
(2)
18
13
12 %
19
1
13
TABLE 8: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(2)(3)
(In billions)
Americas
Europe/Middle East/Africa
Asia/Pacific
Total
$
$
December 31, 2021
December 31, 2020
December 31, 2019
% Change
2021 vs. 2020
% Change
2020 vs. 2019
32,427 $
28,245 $
8,599
2,652
8,101
2,445
43,678 $
38,791 $
25,018
7,325
2,015
34,358
15 %
6
8
13
13 %
11
21
13
(1) Certain previously reported amounts presented have been reclassified to conform to current-period presentation.
(2) Consistent with past practice, AUC/A values for certain asset classes are based on a lag, typically one-month.
(3) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
Asset servicing mandates newly announced in 2021 totaled approximately $3.52 trillion, with State Street
Alpha representing a large proportion of the wins. Servicing assets remaining to be installed in future periods totaled
approximately $2.80 trillion as of December 31, 2021, which will be reflected in AUC/A in future periods after
installation and will generate servicing fee revenue in subsequent periods. The full revenue impact of such
mandates will be realized as the assets are installed and additional services are added over that period.
New asset servicing mandates may be subject to completion of definitive agreements, approval of applicable
boards and shareholders and customary regulatory approvals. New asset servicing mandates and servicing assets
remaining to be installed in future periods exclude certain new business which has been contracted, but for which
the client has not yet provided permission to publicly disclose and the expected installation date extends beyond
one quarter. These excluded assets, which from time to time may be significant, will be included in new asset
servicing mandates and reflected in servicing assets remaining to be installed in the period in which the client
provides its permission. Servicing mandates and servicing assets remaining to be installed in future periods are
presented on a gross basis and therefore also do not include the impact of clients who have notified us during the
period of their intent to terminate or reduce their relationship with us, which may from time to time be significant.
With respect to these new servicing mandates, once installed we may provide various services, including
accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, FX,
fund administration, hedge fund servicing, middle office outsourcing, performance and analytics, private equity
administration, real estate administration, securities finance, transfer agency and wealth management services.
Revenues associated with new servicing mandates may vary based on the breadth of services provided and the
timing of installation, and the types of assets.
As a result of a decision to diversify providers, one of our large asset servicing clients has advised us it expects
to move a significant portion of its ETF assets currently with State Street to one or more other providers, pending
necessary approvals. We expect to continue as a significant service provider for this client after this transition and
for the client to continue to be meaningful to our business. The transition is expected to begin in 2022, but will
principally occur in 2023 and 2024. For the year ended December 31, 2021, the fee revenue associated with the
transitioning assets represented approximately 1.9% of our total fee revenue. The actual total revenue and income
impact of this transition will reflect a range of factors, including potential growth in our continuing business with the
client and expense reductions associated with the transition.
State Street Corporation | 65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management Fee Revenue
Management fees generally are affected by our
level of AUM, which we report based on month-end
valuations. Management fees for certain components
of managed assets, such as ETFs, mutual funds and
UCITS, are affected by daily average valuations of
AUM. Management fee revenue is more sensitive to
market valuations than servicing fee revenue, as a
higher proportion of the underlying services provided,
and the associated management fees earned, are
dependent on equity and
fixed-income security
valuations. Additional factors, such as the relative mix
of assets managed, may have a significant effect on
revenue. While certain
our management
management fees are directly determined by the
investment strategies
values of AUM and
the
employed, management
fees may reflect other
factors, including performance fee arrangements, as
well as our relationship pricing for clients. In addition,
in a prolonged low-interest rate environment, such as
we are currently experiencing, we have waived and
may in the future waive certain fees for our clients for
money market products.
fee
fee
The impact of State Street Global Advisors
gross money market fund fee waivers on total
revenue was approximately
management
$80 million in 2021. Following the first expected rate
hike by the Federal Reserve, we expect the impact of
gross money market fee waivers on our management
fees would be largely mitigated in the subsequent
quarterly periods.
Asset-based management fees for passively
managed products, to which our AUM is currently
primarily weighted, are generally charged at a lower
fee on AUM than for actively managed products.
Actively managed products may also
include
performance fee arrangements which are recorded
when the fee is earned, based on predetermined
benchmarks associated with the applicable account's
performance.
In light of the above, we estimate, using relevant
information as of December 31, 2021 and assuming
that all other factors remain constant, including the
impact of business won and lost and client flows, that:
•
•
A 10% increase or decrease in worldwide
equity valuations, on a weighted average
basis, over the relevant periods for which our
management
fees are calculated, would
result in a corresponding change in our total
management fee revenues, on average and
over multiple quarters, of approximately 5%;
and
changes in worldwide fixed income markets,
which on a weighted average basis and over
time are typically less volatile than worldwide
equity markets, will have a significantly
smaller
fee
revenues on average and over time.
impact on our management
Daily averages, month-end averages and year-
end indices demonstrate worldwide changes in equity
and debt markets that affect our management fee
revenue. Year-end indices affect the values of AUM
as of those dates. See Table 3: Daily Averages,
Month-End Averages and Year-End Equity Indices for
selected indices. While the specific indices presented
are indicative of general market trends, the asset
types and classes relevant
individual client
portfolios can and do differ, and the performance of
associated relevant indices and of client portfolios
can therefore differ from the performance of the
asset
indices
industry
classifications may differ
classifications presented.
addition,
from
presented.
those
our
to
In
fees
Management
increased 9%
in 2021
compared to 2020, primarily due to higher average
equity market levels and net inflows from ETFs,
partially offset by a previously reported idiosyncratic
institutional client asset reallocation expected to be
primarily reflected in 2022, and higher money market
fee waivers.
Management fees generated outside the U.S.
were approximately 26% of total management fees in
2021, compared to approximately 26% and 27% in
2020 and 2019, respectively.
State Street Corporation | 66
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 9: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH
(In billions)
Equity:
Active
Passive
Total equity(1)
Fixed-income:
Active
Passive
Total fixed-income(1)
Cash(1)(2)
Multi-asset-class solutions:
Active
Passive
Total multi-asset-class solutions(1)
Alternative investments(3):
Active
Passive
Total alternative investments(1)
Total
December 31, 2021
December 31, 2020
December 31, 2019
% Change
2021 vs. 2020
% Change
2020 vs. 2019
$
80 $
85 $
2,594
2,674
2,086
2,171
103
520
623
368
34
188
222
56
195
251
90
459
549
349
40
146
186
39
173
212
90
1,900
1,990
87
392
479
317
41
116
157
30
143
173
$
4,138 $
3,467 $
3,116
(6) %
(6) %
24
23
14
13
13
5
(15)
29
19
44
13
18
19
10
9
3
17
15
10
(2)
26
18
30
21
23
11
(1) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the
categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.
(2) Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(3) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager
for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
TABLE 10: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1)
(In billions)
North America
Europe/Middle East/Africa
Asia/Pacific
Total
December 31, 2021
December 31, 2020
December 31, 2019
% Change
2021 vs. 2020
% Change
2020 vs. 2019
$
$
2,931 $
2,411 $
592
615
512
544
4,138 $
3,467 $
2,114
493
509
3,116
22 %
16
13
19
14 %
4
7
11
(1)Geographic mix is based on client location or fund management location.
TABLE 11: EXCHANGE - TRADED FUNDS BY ASSET CLASS(1)
December 31, 2021
December 31, 2020
December 31, 2019
% Change
2021 vs. 2020
% Change
2020 vs. 2019
(In billions)
Alternative Investments(2)
Equity(3)
Multi Asset
Fixed-Income(3)
$
72 $
83 $
970
1
135
708
—
115
56
617
1
94
768
(13) %
37
nm
17
30
48 %
15
nm
22
18
Total Exchange-Traded Funds
$
1,178 $
906 $
.
(1) ETFs are a component of AUM presented in the preceding table.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for
the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(3) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the
categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.
State Street Corporation | 67
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 12: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)
Balance as of December 31, 2018
Long-term institutional flows, net(4)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
Balance as of December 31, 2019
Long-term institutional flows, net(4)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
Balance as of December 31, 2020
Long-term institutional flows, net(4)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
Balance as of December 31, 2021
Equity(1)
Fixed-
Income(1)
Cash(1)(2)
Multi-Asset-
Class
Solutions(1)
Alternative
Investments(1)(3)
Total
$
1,542 $
432 $
280 $
133 $
124 $
2,511
26
12
—
38
406
4
410
(6)
16
—
10
36
1
37
—
—
31
31
6
—
6
4
—
—
4
20
—
20
14
6
—
20
28
1
29
38
34
31
103
496
6
502
$
1,990 $
479 $
317 $
157 $
173 $
3,116
(101)
12
—
(89)
241
29
270
4
16
—
20
42
8
50
(1)
—
32
31
(1)
2
1
9
—
—
9
18
2
20
(11)
(100)
16
—
5
30
4
34
44
32
(24)
330
45
375
$
2,171 $
549 $
349 $
186 $
212 $
3,467
(25)
94
—
69
476
(42)
434
70
23
—
93
(7)
(12)
(19)
(2)
—
20
18
2
(1)
1
16
—
—
16
22
(2)
20
10
(10)
—
—
43
(4)
39
69
107
20
196
536
(61)
475
$
2,674 $
623 $
368 $
222 $
251 $
4,138
(1) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the
categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.
(2) Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(3) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for
the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(4) Amounts represent long-term portfolios, excluding ETFs.
Foreign Exchange Trading Services
Foreign exchange trading services revenue, as presented in Table 2: Total Revenue, decreased 11% in 2021
compared to 2020, primarily due to lower FX volatility, as compared to the high levels of volatility experienced in
2020 due to the COVID-19 pandemic, partially offset by higher client FX volumes. Foreign exchange trading
services revenue comprises revenue generated by FX trading and revenue generated by brokerage and other
trading services, which made up 67% and 33%, respectively, of foreign exchange trading services revenue in 2021,
and 68% and 32%, respectively in 2020. The impact of gross money market fund fee waivers on foreign exchange
trading services was $53 million in 2021, compared to $8 million in 2020. This represents a reduction in revenue on
the Fund Connect platform due to the impact of fee waivers by participating money market funds, including State
Street Global Advisors funds.
We primarily earn FX trading revenue by acting as a principal market-maker through both "direct sales and
trading” and “indirect FX trading.”
•
•
Direct sales and trading: Represent FX transactions at negotiated rates with clients and investment
managers that contact our trading desk directly. These principal market-making activities include
transactions for funds serviced by third party custodians or prime brokers, as well as those funds under
custody with us.
Indirect FX trading: Represents FX transactions with clients, for which we are the funds' custodian, or their
investment managers, routed to our FX desk through our asset-servicing operation. We execute indirect FX
trades as a principal at rates disclosed to our clients.
Our FX trading revenue is influenced by multiple factors, including: the volume and type of client FX
transactions and related spreads; currency volatility, reflecting market conditions; and our management of exchange
rate, interest rate and other market risks associated with our FX activities. The relative impact of these factors on
our total FX trading revenues often differs from period to period. For example, assuming all other factors remain
constant, increases or decreases in volumes or bid-offer spreads across product mix tend to result in increases or
decreases, as the case may be, in client-related FX revenue.
State Street Corporation | 68
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
trading
to either direct sales and
Our clients that utilize indirect FX trading can, in
addition to executing their FX transactions through
dealers not affiliated with us, transition from indirect
FX
trading
execution, including our “Street FX” service, or to one
of our electronic trading platforms. Street FX, in which
we continue to act as a principal market-maker,
enables our clients to define their FX execution
strategy and automate
trade execution
process, both for funds under custody with us as well
as those under custody at another bank.
the FX
We also earn foreign exchange trading services
revenue through "electronic FX services" and "other
trading,
transition management and brokerage
revenue."
•
Electronic FX services: Our clients may
choose to execute FX transactions through
one of our electronic trading platforms. These
through a
transactions generate revenue
“click” fee.
• Other trading, transition management and
brokerage revenue: As our clients look to us
to enhance and preserve portfolio values,
they may choose to utilize our Transition or
Currency Management
or
transact with our Equity Trade execution
group. These transactions, which are not
limited
foreign exchange, generate
revenue via commissions charged for trades
transacted during the management of these
portfolios.
capabilities
to
Fund Connect is another one of our electronic
trading platforms: it is a global trading, analytics and
cash management tool with access to more than 400
money market funds from leading providers.
Securities Finance
Our securities finance business consists of three
components:
(1) an agency lending program for State Street
Global Advisors managed investment funds
with a broad range of investment objectives,
which we refer to as the State Street Global
Advisors lending funds;
(2) an agency lending program for third-party
investment managers and asset owners,
which we refer to as the agency lending
funds; and
(3) security lending transactions which we enter
into as principal, which we refer to as our
enhanced custody business.
Securities finance revenue earned from our
agency lending activities, which is composed of our
split of both the spreads related to cash collateral and
the fees related to non-cash collateral, is principally a
function of the volume of securities on loan, the
interest rate spreads and
fees earned on
underlying collateral and our share of the fee split.
the
As principal, our enhanced custody business
borrows securities from the lending client or other
market participants and then lends such securities to
the subsequent borrower, either our client or a broker/
dealer. We act as principal when the lending client is
unable to, or elects not to, transact directly with the
market and execute the transaction and furnish the
securities. In our role as principal, we provide support
to the transaction through our credit rating. While we
source a significant proportion of the securities
furnished by us in our role as principal from third
parties, we have the ability to source securities
through assets under custody from clients who have
designated us as an eligible borrower.
Securities finance revenue, as presented in
Table 2: Total Revenue, increased 17% in 2021
compared to 2020, primarily driven by higher client
securities loan balances and new business wins in
enhanced custody, partially offset by lower spreads.
Market influences may continue to affect client
demand for securities finance, and as a result our
revenue from, and the profitability of, our securities
lending activities in future periods. In addition, the
constantly evolving regulatory environment, including
revised or proposed capital and liquidity standards,
interpretations of those standards, and our own
balance sheet management activities, may influence
modifications to the way in which we deliver our
agency lending or enhanced custody businesses, the
volume of our securities lending activity and related
revenue and profitability in future periods.
Software and Processing Fees
Software and processing fees revenue includes
diverse types of fees and revenue, including fees
from software licensing and maintenance, fees from
our structured products business and other revenue
joint venture
including equity
investments, market-related adjustments and income
associated with certain tax-advantaged investments.
from our
income
fees
Software and processing
revenue,
presented in Table 2: Total Revenue, increased 7% in
2021 compared to 2020 and includes approximately
$435 million and $406 million from CRD in 2021 and
2020, respectively. CRD contributed approximately
$13 million and $14 million in brokerage and other
trading services within foreign exchange trading
services
in 2021, and 2020, respectively, and
$448 million in total revenue in 2021, compared to
$420 million in 2020. The increase in revenue is
primarily driven by software as a service (SaaS) and
professional services revenue. In addition, CRD
revenue with affiliated entities, which is eliminated in
our consolidated financial statements, was $62 million
and $39 million in 2021 and 2020, respectively.
State Street Corporation | 69
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
software
Revenue related to the front office solutions provided
by CRD is primarily driven by the sale of term
software licenses and SaaS, including professional
services such as consulting and implementation
services,
support and maintenance.
Approximately 50%-70% of revenue associated with
a sale of software to be installed on-premises is
recognized at a point in time when the customer
benefits from obtaining access to and use of the
software license, with the percentage varying based
on the length of the contract and other contractual
terms. The remainder of revenue for on-premise
installations is recognized over the length of the
contract as maintenance and other services are
provided. Upon renewal of an on-premises software
contract, the same pattern of revenue recognition is
followed with 50%-70% recognized upon renewal and
the balance recognized over the term of the contract.
Revenue for a SaaS related arrangement, where the
customer does not take possession of the software, is
recognized over the term of the contract as services
are provided. Upon renewal of a SaaS arrangement,
revenue continues to be recognized as services are
provided under the new contract. As a result of these
differences in how portions of CRD revenue are
accounted for, CRD revenue may vary more than
other business units quarter to quarter.
is exempt from income taxes, mainly earned from
certain
investment securities (state and political
subdivisions), is adjusted to a FTE basis using the
U.S. federal and state statutory income tax rates.
NII on an FTE basis decreased
in 2021
compared to 2020, primarily due to lower investment
portfolio yields, partially offset by growth in the
investment portfolio, deposits, and higher
loan
balances.
Investment securities net premium amortization,
which is included in interest income, was $556 million
in 2021, compared to $575 million in 2020 and
$434 million in 2019. The decrease in MBS premium
amortization is primarily due to lower prepayments.
level rate of return over
Interest income related to debt securities is
recognized in our consolidated statement of income
using the effective interest method, or on a basis
approximating a
the
contractual or estimated life of the security. The rate
of return considers any non-refundable fees or costs,
as well as purchase premiums or discounts, resulting
in amortization or accretion, accordingly. The
amortization of premiums and accretion of discounts
are adjusted for prepayments when they occur, which
primarily impact mortgage-backed securities.
tax advantage
Amortization of
investments
negatively impacted software and processing fees by
approximately $94 million and $88 million in 2021 and
2020, respectively.
In addition, FX and market-related adjustments,
which also includes certain fair value adjustments,
impacted
fees by
software and processing
approximately $20 million and $26 million in 2021 and
2020, respectively.
Additional information about fee revenue is
Information"
"Line of Business
this Management's Discussion and
in
provided under
included
Analysis.
Net Interest Income
See Table 2: Total Revenue, for the breakout of
interest income and interest expense for the years
ended December 31, 2021, 2020 and 2019.
NII is defined as interest income earned on
interest-earning assets less interest expense incurred
on interest-bearing liabilities. Interest-earning assets,
which principally consist of investment securities,
interest-bearing deposits with banks, loans, resale
agreements and other liquid assets, are financed
primarily by client deposits, short-term borrowings
and long-term debt.
NIM
represents
relationship between
the
annualized FTE NII and average total interest-earning
assets for the period. It is calculated by dividing FTE
NII by average interest-earning assets. Revenue that
State Street Corporation | 70
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents the investment securities amortizable purchase premium net of discount accretion
for the periods indicated:
TABLE 13: INVESTMENT SECURITIES NET PREMIUM AMORTIZATION
2021
2020
2019
Years Ended December 31,
(Dollars in millions)
MBS
Non-MBS
Total(1)
MBS
Non-MBS
Total(1)
MBS
Non-MBS
Total(1)
Unamortized premiums, net of
discounts at period end
Net premium amortization(2)
$
712 $
502 $
1,214 $
1,173 $
736 $
1,909 $
956 $
629 $
1,585
342
214
556
399
176
575
275
159
434
(1) The investment securities portfolio duration was 2.9 years in 2021, 3.0 years in 2020 and 2.7 years in 2019.
(2) Net of discount accretion on MMLF HTM securities.
See Table 14: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on
a FTE basis for the years ended December 31, 2021, 2020 and 2019.
TABLE 14: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1)
Years Ended December 31,
2021
Interest
Revenue/
Expense
Average
Balance
Rate
Average
Balance
2020
Interest
Revenue/
Expense
Rate
Average
Balance
2019
Interest
Revenue/
Expense
Rate
$
89,996 $
(15)
(.02) % $
76,588 $
76
.10 % $
48,500 $
416
.86 %
(Dollars in millions; fully taxable-
equivalent basis)
Interest-bearing deposits with banks(2)
Securities purchased under resale
agreements(3)
Trading account assets
Investment securities:
Investment securities available for sale
Investment securities held-to-maturity
Investment securities held-to-maturity
purchased under money market
liquidity facility
Total Investment securities
Loans
Other interest-earning assets
Interest-bearing deposits:
U.S.
Non-U.S.(2)(4)
Total interest-bearing deposits(4)(5)
Securities sold under repurchase
agreements
Short-term borrowings under money
market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Interest rate spread
Net interest income, fully taxable-
equivalent basis
Net interest margin, fully taxable-
equivalent basis
Tax-equivalent adjustment
Net interest income, GAAP basis
4,193
752
66,584
44,832
314
111,730
31,009
22,355
82,126
186,974
667
315
788
13,383
5,486
Average total interest-bearing liabilities
$ 207,613 $
27
—
.63
.01
583
665
.88
1.48
4
1,252
640
17
1.35
1.12
2.07
.08
.74
3,452
878
58,036
42,956
8,183
109,175
27,525
11,256
126
—
761
830
117
1,708
627
55
$ 228,874 $
2,592
3.64
—
1.31
1.93
1.43
1.56
2.28
.49
1.13
2,506
884
51,853
39,915
—
91,768
24,073
14,160
364
14.54
1
.11
1,035
974
1.98
2.44
—
2,009
775
395
—
2.19
3.22
2.79
2.18
$ 104,848 $
10
.01 % $
87,444 $
(273)
(263)
(.33)
(.14)
68,806
156,250
114
(231)
(117)
.13 % $
67,547 $
(.34)
(.07)
61,301
128,848
539
124
663
.80 %
.20
.51
—
—
2,615
4
.14
1,616
31
1.90
4
2
219
41
3
1.21
.21
1.64
.75
—
.74 %
8,207
2,226
14,371
3,176
$ 186,845 $
101
18
312
57
375
1.22
.78
2.17
1.82
.20
.93 %
—
1,524
11,474
4,103
—
21
414
246
$ 147,565 $
1,375
$
1,918
$
2,217
$
2,585
.74 %
.97 %
(13)
$
1,905
(17)
$
2,200
(19)
$
2,566
—
1.37
3.61
6.00
.93
1.25 %
1.42 %
Average total interest-earning assets
$ 260,035 $
1,921
$ 181,891 $
3,960
(1) Rates earned/paid on interest-earning assets and interest-bearing liabilities include the impact of hedge activities associated with our asset and liability
management activities where applicable.
(2) Negative values reflect the interest rate environment outside of the U.S. where central bank rates are below zero for several major currencies.
(3) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $62.15 billion, $100.45 billion and $86.67 billion for the years
ended December 31, 2021, 2020 and 2019, respectively. Excluding the impact of netting, the average interest rates would be approximately 0.04%, 0.12% and 0.41%
for the years ended December 31, 2021, 2020 and 2019, respectively.
(4) Average rate includes the impact of FX swap costs of approximately ($68) million, ($63) million and $153 million for the years ended December 31, 2021, 2020 and
2019, respectively. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were (0.10)%, (0.03)% and 0.40% for the years ended
December 31, 2021, 2020 and 2019, respectively.
(5) Total deposits averaged $235.40 billion, $193.23 billion and $158.26 billion for the years ended December 31, 2021, 2020 and 2019, respectively.
State Street Corporation | 71
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Changes in the components of interest-earning
assets and interest-bearing liabilities are discussed in
more detail below. Additional information about the
components of interest income and interest expense
is provided in Note 17 to the consolidated financial
statements in this Form 10-K.
total
Average
interest-earning assets were
$260.04 billion in 2021 compared to $228.87 billion in
2020. The increase is primarily due to higher interest-
bearing deposits with banks and
investment
securities.
Interest-bearing deposits with banks averaged
$90.00 billion in 2021 compared to $76.59 billion in
2020. These deposits primarily
reflect our
the Federal
maintenance of cash balances at
Reserve, the European Central Bank (ECB) and other
non-U.S. central banks. The higher levels of average
cash balances with central banks reflect higher levels
of client deposits.
Securities purchased under resale agreements
averaged $4.19 billion in 2021 compared to $3.45
billion in 2020. The impact of balance sheet netting
decreased to $62.15 billion on average in 2021
compared to $100.45 billion in 2020. We maintain an
agreement with FICC, a clearing organization that
enables us to net all securities sold under repurchase
agreements against those purchased under resale
agreements with counterparties
that are also
members of the clearing organization when specific
netting criteria are met. The decrease in average
balance sheet netting in 2021 compared to 2020 is
primarily due to lower FICC repo volumes from an
increased cash supply and lower short-term interest
rates driven by extensive Federal Reserve stimulus.
transactions
We have been a sponsoring member within
FICC since 2005 and have continued to expand our
client base as program eligibility parameters,
including permissible client entity types and client
into
jurisdictions, have broadened. We enter
repurchase and
in eligible
resale
securities with sponsored clients and with other FICC
members and, pursuant
to FICC Government
Securities Division rules, submit, novate and net the
transactions. We may sponsor clients to clear their
eligible repurchase transactions with FICC, backed by
our guarantee to FICC of the prompt and full payment
and performance of our sponsored member clients’
respective obligations. We generally obtain a security
interest from our sponsored clients in the high quality
securities collateral
is
designed to mitigate our potential exposure to FICC.
they receive, which
that
Average
to
investment securities
$111.73 billion in 2021 from $109.18 billion in 2020,
primarily driven by MBS balances and
foreign
reflects our
government bonds. The growth
increased
deployment of higher structural deposit levels that
resulted from the COVID-19 pandemic.
Loans averaged $31.01 billion
in 2021
compared to $27.53 billion in 2020. Average core
loans, which exclude overdrafts and highlight our
efforts to grow our lending portfolio, averaged $26.76
billion in 2021 compared to $22.84 billion in 2020.
The increase is primarily due to growth in CLOs in
loan form and fund finance loans, such as our private
equity capital call facilities. Additional information
about these loans is provided in Note 4 to the
consolidated financial statements in this Form 10-K.
Average other interest-earning assets, largely
associated with our enhanced custody business,
increased to $22.36 billion in 2021 from $11.26 billion
in 2020, primarily driven by an increase in the level of
cash collateral posted. Enhanced custody is our
securities
financing business where we act as
principal with respect to our custody clients and
generate securities finance revenue. The NII earned
on these transactions is generally lower than the
interest earned on other alternative investments.
total
average
Aggregate
interest-bearing
deposits increased to $186.97 billion in 2021 from
$156.25 billion in 2020. Average U.S. interest-bearing
deposits increased amidst the market uncertainty due
to the COVID-19 pandemic, U.S. monetary policy and
the level of global interest rates. We expect deposits
to remain elevated due to the current low interest rate
environment and the size of the Federal Reserve's
levels will be
balance sheet. Future deposit
influenced by the underlying asset servicing business,
client deposit behavior and market conditions,
including the general levels of U.S. and non-U.S.
interest rates.
Average other short-term borrowings, typically
associated with our tax-exempt investment program,
decreased to $0.79 billion in 2021 from $2.23 billion
in 2020.
Average long-term debt was $13.38 billion in
2021 compared to $14.37 billion in 2020. These
redemptions and
amounts
issuances,
the respective
maturities of senior debt during
periods.
reflect
Average other interest-bearing liabilities were
$5.49 billion in 2021 compared to $3.18 billion in
2020. Other interest-bearing liabilities primarily reflect
our level of cash collateral received from clients in
connection with our enhanced custody business,
which is presented on a net basis where we have
enforceable netting agreements.
Several factors could affect future levels of NII
and NIM, including the volume and mix of client
deposits and funding sources; central bank actions;
balance sheet management activities; changes in the
level and slope of U.S. and non-U.S. interest rates;
State Street Corporation | 72
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
revised or proposed regulatory capital or liquidity
standards, or interpretations of those standards; the
yields earned on securities purchased compared to
the yields earned on securities sold or matured and
changes in the type and amount of credit or other
loans we extend.
Based on market conditions and other factors,
including
to
regulatory standards, we continue
reinvest the majority of the proceeds from pay-downs
and maturities of investment securities in highly-rated
U.S. and non-U.S. securities, such as federal agency
MBS, sovereign debt securities and U.S. Treasury
and agency securities. The pace at which we reinvest
and the types of investment securities purchased will
depend on the impact of market conditions, the
implementation of regulatory standards, including
interpretation of those standards and other factors
over time. We expect these factors and the levels of
global interest rates to impact our reinvestment
program and future levels of NII and NIM.
Other Income
In the second quarter of 2021, we sold a
majority share of our WMS business, which resulted
in a pre-tax gain on sale of $53 million that was
recorded in other income.
In the fourth quarter of 2021, we transferred
$438 million of HTM debt securities that referenced
LIBOR and other discontinued reference rates to
AFS. Of those transferred securities, $378 million
were subsequently sold, resulting in a pre-tax gain of
$58 million.
Provision for Credit Losses
In 2021, we released $33 million of credit
reserves related to loans and financial assets held at
amortized cost and off-balance sheet commitments
based on
reflecting
the CECL methodology,
observed and expected improvements in both credit
quality and economic outlook. This compares to a
$88 million provision for credit losses in 2020 based
on the CECL methodology, and $10 million in 2019,
which was under the incurred loss model.
Additional information is provided under “Loans”
this Management's
in
"Financial Condition"
in
Discussion and Analysis and in Note 4 to the
consolidated financial statements in this Form 10-K.
Expenses
Table 15: Expenses, provides the breakout of
expenses for the years ended December 31, 2021,
2020 and 2019.
TABLE 15: EXPENSES
Years Ended December 31,
(Dollars in millions)
2021
2020
2019
%
Change
2021 vs.
2020
%
Change
2020 vs.
2019
$ 4,554 $ 4,450 $ 4,541
2 %
(2) %
1,661
1,550
1,465
1,024
444
245
66
978
489
234
54
983
470
236
79
7
5
(9)
5
22
6
(1)
4
(1)
(32)
(1)
(4)
(2)
(75)
100
Compensation and
employee benefits
Information systems
and communications
Transaction
processing services
Occupancy
Amortization of other
intangible assets
Acquisition costs
Restructuring
charges, net
Other:
Professional
services
Other
Total other
334
562
896
364
601
321
941
965
1,262
Total expenses
$ 8,889 $ 8,716 $ 9,034
Number of employees
at year-end
38,784
39,439
39,103
(8)
(6)
(7)
2
(2)
13
(36)
(24)
(4)
1
term of
the awards (1
Compensation and employee benefits expenses
increased 2% in 2021 compared to 2020, primarily
due to deferred compensation expense acceleration
of $147 million associated with an amendment of the
terms of certain outstanding deferred cash incentive
compensation awards. This amendment removes
continued service requirements for deferred cash
incentive awards, thereby accelerating the future
expense that would have been recognized over the
remaining
to 4 years,
depending on the award) had the continued service
requirement not been removed. The deferred portion
total
of many of our bonus-eligible employees'
compensation had become disproportionate relative
to our peer organizations. The expense that would
otherwise have been associated with the amended
awards will no longer be reflected in future periods.
To make our pay practices more competitive, the
acceleration
the
immediate cash versus the deferred portion of total
cash incentive compensation in future periods, which
cash incentive compensation will be reflected in
compensation and employee benefits expenses in
impact of
those periods. The expense
future
immediate and deferred
incentive compensation
awards will depend upon corporate performance and
market, regulatory, and other factors and conditions,
including the amount and form of those awards. The
change did not affect deferred equity-settled incentive
compensation awards (which,
the aggregate,
represent a majority of the outstanding deferred
compensation awards for the relevant employees),
and we expect that future deferred cash-settled
incentive compensation awards will retain a continued
service requirement.
is part of a plan
increase
to
in
Total headcount decreased 2% as of December
31, 2021 compared to December 31, 2020, primarily
driven by a reduction in high cost locations, partially
offset by hiring in global hubs.
Information
communications
systems and
expenses increased 7% in 2021 compared to 2020,
State Street Corporation | 73
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
primarily due to higher technology infrastructure
investments and equipment expenses.
Transaction processing services expenses
increased 5% in 2021 compared to 2020, primarily
due to higher sub-custody costs and higher broker
fees.
Occupancy expenses decreased 9% in 2021
footprint
primarily
2020,
due
to
compared
optimization.
Amortization of other
intangible assets
increased 5% in 2021 compared to 2020, primarily
due to the acquisition in the first quarter of 2021 of
the depository bank and fund administrator activities
of Fideuram Bank Luxembourg, a subsidiary of Intesa
Sanpaolo.
Other expenses decreased 7%
in 2021
compared
lower
professional services, securities processing losses
and travel costs.
to 2020, primarily driven by
Acquisition Costs
We recorded approximately $53 million of
acquisition costs in 2021, compared to $54 million in
2020 and $79 million
to our
acquisition of CRD. As of December 31, 2021, we
have incurred a total of $217 million of acquisition
costs related to CRD. Starting in 2022, we will no
longer distinguish certain CRD costs as acquisition
costs.
in 2019, related
In addition, we
recorded approximately
$13 million of acquisition costs in 2021 related to our
planned acquisition of the BBH Investor Services
business. We expect to incur up to approximately
$590 million of total acquisition and integration costs
related to the acquisition through the third year
following its closing.
Restructuring and Repositioning Charges
Repositioning Charges
Expenses for 2021 included a net repositioning
release of $3 million, consisting of a $32 million
release of previously accrued severance charges,
primarily due to higher attrition and redeployment
rates during the COVID-19 pandemic, partially offset
by $29 million of occupancy charges related to
footprint optimization. Total repositioning charges
were $133 million in 2020.
The following table presents aggregate activity
for repositioning charges and activity related to
previous Beacon restructuring charges for the periods
indicated:
TABLE
CHARGES
16: RESTRUCTURING AND REPOSITIONING
Employee
Related
Costs
Real
Estate
Actions
Asset and
Other
Write-offs
Total
$
303 $
37 $
1 $
341
(2)
98
—
12
(209)
(42)
7
—
51
—
—
—
1
—
—
(2)
110
(251)
198
(4)
133
(52)
(1)
(131)
6
—
29
(29)
—
—
—
—
196
(1)
(3)
(118)
190
(4)
82
(78)
190
(1)
(32)
(89)
(In millions)
Accrual Balance at
December 31, 2018
Accruals for Beacon
Accruals for
Repositioning Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2019
Accruals for Beacon
Accruals for
Repositioning Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2020
Accruals for Beacon
Accruals for
Repositioning Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2021
$
68 $
6 $
— $
74
Income Tax Expense
Income tax expense was $478 million in 2021
compared to $479 million in 2020. Our effective tax
rate was 15.1% in 2021 compared to 16.5% in 2020.
The decrease in the effective tax rate is primarily due
to discrete benefits from the completion of tax audits
and tax return finalization.
Additional
information regarding
tax
expense, including unrecognized tax benefits and tax
contingencies, are provided in Notes 13 and 22 to the
consolidated financial statements in this Form 10-K.
income
LINE OF BUSINESS INFORMATION
Our operations are organized into two lines of
business:
Investment
Investment Servicing and
Management, which are defined based on products
and services provided. The results of operations for
lines of business are not necessarily
these
comparable with those of other companies, including
companies in the financial services industry. For the
description of our lines of business, refer to "Lines of
Business” in Item 1 in this Form 10-K. Certain costs
are not allocated to our two lines of business,
including repositioning charges, acquisition costs and
certain legal accruals. In addition, the acceleration of
deferred compensation of $147 million in 2021 was
not allocated to our two lines of business. See Note
24 to the consolidated financial statements in this
Form 10-K.
State Street Corporation | 74
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Servicing
TABLE 17: INVESTMENT SERVICING LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)
2021
2020
2019
Years Ended December 31,
% Change
2021 vs. 2020
% Change
2020 vs. 2019
Servicing fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income
Total other income
Total revenue
Provision for credit losses
Total expenses
Income before income tax expense
Pre-tax margin
Average assets (in billions)
nm Not meaningful
Servicing Fees
$
$
$
5,549
1,149
402
779
7,879
1,919
(1)
9,797
(33)
7,182
2,648
27 %
296.5
$
$
$
5,167
1,299
342
706
7,514
2,211
4
9,729
88
7,071
2,570
26 %
266.4
$
5,074
974
462
691
7,201
2,590
43
9,834
10
7,140
2,684
27 %
220.3
$
$
7 %
(12)
18
10
5
(13)
nm
1
(138)
2
3
2 %
33
(26)
2
4
(15)
nm
(1)
780
(1)
(4)
Servicing fees, as presented in Table 17: Investment Servicing Line of Business Results, increased 7% in 2021
compared to 2020 primarily due to higher average equity market levels, client activity and flows, and net new
business, partially offset by normal pricing headwinds. FX rates impacted servicing fees positively by 1% in 2021
relative to 2020 and 0.4% in 2020 relative to 2019.
Additional information about servicing fees is provided under "Fee Revenue" in "Consolidated Results of
Operations" included in this Management's Discussion and Analysis.
For additional information about the impact of worldwide equity and fixed-income valuations on our fee
revenue, as well as other key drivers of our servicing fee revenue, refer to "Fee Revenue" in "Consolidated Results
of Operations" included in this Management's Discussion and Analysis.
Expenses
Total expenses for Investment Servicing increased 2% in 2021 compared to 2020, primarily reflecting higher
technology infrastructure investments, equipment expenses, higher business volume related costs and unfavorable
currency translation, partially offset by expense savings initiatives. Currency translation increased expenses for
Investment Servicing by 1% in 2021 relative to 2020. Seasonal deferred incentive compensation expense and
payroll taxes were $141 million in 2021 compared to $125 million in 2020. Total expenses contributed by CRD were
approximately $287 million and $248 million in 2021 and 2020, respectively. Additional information about expenses
is provided under "Expenses" in "Consolidated Results of Operations" included in this Management's Discussion
and Analysis.
State Street Corporation | 75
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Management
TABLE 18: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)
Management fees(1)
Foreign exchange trading services(2)
Securities finance
Software and processing fees(3)
Total fee revenue
Net interest income
Total revenue
Total expenses
Income before income tax expense
Pre-tax margin
Average assets (in billions)
Years Ended December 31,
2021
2020
2019
% Change
2021 vs.
2020
% Change
2020 vs.
2019
$
2,053
$
1,880
$
1,824
9 %
3 %
62
14
4
2,133
(14)
2,119
1,445
674
32 %
3.2
$
$
64
14
27
1,985
(11)
1,974
1,471
503
25 %
2.9
$
$
84
9
29
1,946
(24)
1,922
1,535
387
20 %
3.0
$
$
(3)
—
(85)
7
27
7
(2)
34
(24)
56
(7)
2
(54)
3
(4)
30
(1) Includes revenues from SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust AUM where we are not the investment manager but act as the marketing
agent.
(2) Includes revenue for reimbursements received for certain ETFs associated with State Street Global Advisors where we act as the distribution and marketing agent.
(3) Includes other revenue items that are primarily driven by equity market movements.
Investment Management total revenue increased 7% in 2021 compared to 2020.
Management Fees
Management fees increased 9% in 2021 compared to 2020, primarily due to higher average equity market
levels and net inflows from ETFs, partially offset by a previously reported idiosyncratic institutional client asset
reallocation expected to be primarily reflected in 2022, and higher money market fee waivers. FX rates impacted
management fees positively by 1% in 2021 relative to 2020 and 0.5% in 2020 relative to 2019.
Additional information about management fees is provided under " Fee Revenue" in "Consolidated Results of
Operations" included in this Management's Discussion and Analysis.
Expenses
Total expenses for Investment Management decreased 2% in 2021 compared to 2020, primarily due to savings
from on-going expense management initiatives. Currency translation increased expenses for Investment
Management by 1% in 2021 relative to 2020. Seasonal deferred incentive compensation expense and payroll taxes
were $35 million in 2021, compared to $26 million in 2020.
Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations"
included in this Management's Discussion and Analysis.
For additional information about our two lines of business, as well as the revenues, expenses and capital
allocation methodologies associated with them, refer to Note 24 to the consolidated financial statements in this
Form 10-K.
State Street Corporation | 76
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
TABLE 19: AVERAGE STATEMENT OF CONDITION(1)
the
and
sheet
is primarily driven by
The structure of our consolidated statement of
liabilities
condition
Investment Servicing and
generated by our
Investment Management
lines of business. Our
clients' needs and our operating objectives determine
currency
volume, mix
balance
denomination. As our clients execute their worldwide
cash management and investment activities, they
investments
utilize deposits and short-term
that
liabilities. These
the majority of our
constitute
liabilities are generally in the form of interest-bearing
transaction account deposits, which are denominated
in a variety of currencies; non-interest-bearing
demand deposits; and repurchase agreements, which
generally serve as short-term investment alternatives
for our clients.
Deposits and other liabilities resulting from client
initiated transactions are invested in assets that
generally have contractual maturities significantly
longer than our liabilities; however, we evaluate the
operational nature of our deposits and seek to
maintain appropriate short-term liquidity of those
liabilities that are not operational in nature and
maintain longer-termed assets for our operational
deposits. Our assets consist primarily of securities
held in our AFS or HTM portfolios and short-duration
financial
interest-bearing
deposits with banks and securities purchased under
resale agreements. The actual mix of assets is
determined by
the client
liabilities and our desire to maintain a well-diversified
portfolio of high-quality assets.
instruments, such as
the characteristics of
The
following
information on our
financial
condition is based on our average balance sheet,
which we believe is the better measure of our balance
sheet trends as period-end balances can be impacted
by the timing of client activities including deposits and
withdrawals.
(In millions)
Assets:
Interest-bearing deposits with
banks
Securities purchased under
resale agreements
Trading account assets
Investment securities:
Investment securities available
for sale
Investment securities held-to-
maturity
Investment securities held-to-
maturity purchased under
money market liquidity facility
Loans
Other interest-earning assets
Average total interest-
earning assets
Years Ended December 31,
2021
2020
2019
$
89,996 $
76,588 $
48,500
4,193
752
3,452
878
2,506
884
66,584
58,036
51,853
44,832
42,956
39,915
314
8,183
31,009
22,355
27,525
11,256
—
91,768
24,073
14,160
260,035
228,874
181,891
Total Investment securities
111,730
109,175
Cash and due from banks
5,057
3,849
3,390
Other non-interest-earning
assets
34,651
36,611
38,053
Average total assets
$ 299,743 $ 269,334 $ 223,334
Liabilities and shareholders’
equity:
Interest-bearing deposits:
U.S.
Non-U.S.
Total interest-bearing deposits(2)
Securities sold under
repurchase agreements
Short-term borrowings under
money market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Average total interest-
bearing liabilities
Non-interest-bearing deposits(2)
Other non-interest-bearing
liabilities
Preferred shareholders’ equity
Common shareholders’ equity
$ 104,848 $
87,444 $
67,547
82,126
68,806
61,301
186,974
156,250
128,848
667
315
788
13,383
5,486
2,615
1,616
8,207
2,226
14,371
3,176
—
1,524
11,474
4,103
207,613
186,845
147,565
48,430
36,975
29,414
17,615
2,076
24,009
20,464
2,569
22,481
21,299
3,653
21,403
Average total liabilities and
shareholders’ equity
$ 299,743 $ 269,334 $ 223,334
(1) Additional information about our average statement of condition, primarily
our interest-earning assets and interest-bearing liabilities, is provided in "Net
Interest Income" included in this Management's Discussion and Analysis.
(2) Total deposits averaged $235.40 billion in 2021 compared to $193.23
billion and $158.26 billion in 2020 and 2019, respectively.
State Street Corporation | 77
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Securities
TABLE
SECURITIES
20: CARRYING VALUES OF
INVESTMENT
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
As of December 31,
2021
2020
2019
Direct obligations
$ 17,939 $ 6,575 $ 3,487
Mortgage-backed securities
18,208
14,305
17,838
Total U.S. Treasury and federal agencies
36,147
20,880
21,325
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities(1)
Non-U.S. sovereign, supranational and
non-U.S. agency
Other(2)
1,995
1,996
1,980
2,087
2,291
2,179
23,547
22,087
12,373
3,098
3,355
8,658
Total non-U.S. debt securities
30,727
29,729
25,190
Asset-backed securities:
Student loans(3)
Collateralized loan obligations(4)
Non-agency CMBS and RMBS(5)
Other
211
314
531
2,155
2,966
1,820
52
91
78
90
104
89
Total asset-backed securities
2,509
3,448
2,544
State and political subdivisions
Other U.S. debt securities(6)
1,272
1,548
1,783
2,744
3,443
2,973
Total available-for-sale securities
$ 73,399 $ 59,048 $ 53,815
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations
$ 2,170 $ 6,057 $ 10,311
Mortgage-backed securities
33,481
36,901
26,297
Total U.S. Treasury and federal agencies
35,651
42,958
36,608
Non-U.S. debt securities:
Mortgage-backed securities
—
Non-U.S. sovereign, supranational and
non-U.S. agency
Total non-U.S. debt securities
Asset-backed securities:
Student loans(3)
Non-agency CMBS and RMBS(7)
Total asset-backed securities
Total(7)
Held-to-maturity under money market
mutual fund liquidity facility(8)
Total held-to-maturity securities(8)
303
342
645
366
328
694
1,564
1,564
4,908
4,774
3,783
307
554
697
5,215
5,328
4,480
42,430
48,931
41,782
—
3,300
—
$ 42,430 $ 52,231 $ 41,782
(1) As of December 31, 2021, 2020 and 2019, the fair value non-U.S. collateralized
loan obligations of $0.83 billion, $0.96 billion and $0.89 billion, respectively.
(2) As of December 31, 2021, 2020 and 2019, the fair value includes non-U.S.
corporate bonds of $1.53 billion, $1.88 billion and $1.78 billion, respectively.
(3) Primarily comprised of securities guaranteed by the federal government with
respect to at least 97% of defaulted principal and accrued interest on the
underlying loans.
(4) Excludes collateralized loan obligations in loan form. Refer to Note 4 to the
consolidated financial statements in this Form 10-K for additional information.
(5) Consists entirely of non-agency CMBS as of December 31, 2021, 2020 and
2019.
(6) As of December 31, 2021, 2020 and 2019, the fair value of U.S. corporate bonds
was $2.44 billion, $3.44 billion and $2.97 billion, respectively.
(7) As of December 31, 2021, 2020 and 2019, the total amortized cost included
$292 million, $464 million and $573 million, respectively, of non-agency CMBS and
$14 million, $90 million and $124 million, respectively, of non-agency RMBS.
(8) As of December 31, 2021 and 2020, we recognized an allowance for credit
losses on all HTM securities of $0 million and $3 million, respectively, inclusive of
$0 million and $1 million, respectively, related to HTM securities purchased under
the money market mutual fund liquidity facility.
Additional
investment
securities portfolio is provided in Note 3 to the
consolidated financial statements in this Form 10-K.
information about our
the
We manage our investment securities portfolio
to align with
rate and duration
interest
characteristics of our client liabilities and in the
context of the overall structure of our consolidated
statement of condition, in consideration of the global
interest rate environment. We consider a well-
diversified, high-credit quality investment securities
the
portfolio
management of our consolidated statement of
condition.
important element
to be an
in
Average duration of our investment securities
portfolio was 2.9 years and 3.0 years as of December
31, 2021 and December 31, 2020, respectively.
Approximately 92% of the carrying value of the
portfolio was rated “AAA” or “AA” as of both
December 31, 2021 and December 31, 2020.
TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT
RATING (EXCLUDING SECURITIES PURCHASED UNDER THE
MMLF PROGRAM)
December 31, 2021
December 31, 2020
AAA(1)
AA
A
BBB
79 %
13
4
4
100 %
78 %
14
4
4
100 %
(1) Includes U.S. Treasury and federal agency securities that are split-rated,
“AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s and
also includes Agency MBS securities which are not explicitly rated but which
have an explicit or assumed guarantee from the U.S. government.
As of December 31, 2021 and December 31,
2020, the investment portfolio was diversified with
respect to asset class composition. The following
these asset
table presents
classes.
the composition of
TABLE 22: INVESTMENT PORTFOLIO BY ASSET CLASS
December 31, 2021
December 31, 2020
U.S. Agency
Mortgage-backed
securities
Foreign sovereign
U.S. Treasuries
Asset-backed
securities
Other credit(1)
33 %
39 %
21
17
10
19
20
11
11
19
100 %
100 %
(1) Includes the securities purchased under the MMLF program.
Non-U.S. Debt Securities
Approximately 28% and 27% of the aggregate
carrying value of our investment securities portfolio
was non-U.S. debt securities as of December 31,
2021 and December 31, 2020, respectively.
State Street Corporation | 78
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 23: NON-U.S. DEBT SECURITIES(1)
(In millions)
December 31, 2021
December 31, 2020
Available-for-sale:
Canada
Australia
France
Germany
United Kingdom
Austria
Japan
Spain
Netherlands
Belgium
Finland
Italy
Ireland
Other(2)
Total
Held-to-maturity:
Singapore
Australia
Spain
Other(2)
Total
$
$
$
$
4,502 $
3,019
2,180
2,130
1,961
1,478
1,332
1,227
1,109
1,050
837
803
744
8,355
30,727 $
222 $
—
—
1,342
1,564 $
3,163
2,809
2,829
2,155
1,209
1,544
560
1,642
1,528
1,618
1,222
1,014
1,226
7,210
29,729
342
90
84
129
645
(1) Geography is determined primarily based on the domicile of collateral or issuer.
(2) As of December 31, 2021, other non-U.S. investments include $7.4 billion
supranational bonds in AFS securities and $1.3 billion supranational bonds in HTM
securities.
Approximately 81% and 80% of the aggregate
carrying value of these non-U.S. debt securities was
rated “AAA” or “AA” as of December 31, 2021 and
December 31, 2020, respectively. The majority of
these securities comprised senior positions within the
security structures; these positions have a level of
protection provided through subordination and other
forms of credit protection. As of December 31, 2021
and December 31, 2020, approximately 24% and
21%, respectively, of the aggregate carrying value of
these non-U.S. debt securities was floating-rate.
As of December 31, 2021, our non-U.S. debt
securities had an average market-to-book ratio of
100.0%, and an aggregate pre-tax net unrealized loss
of $1 million, composed of gross unrealized gains of
$145 million and gross unrealized losses of $146
million. These unrealized amounts included:
•
•
a pre-tax net unrealized gain of $8 million,
composed of gross unrealized gains of $145
million and gross unrealized losses of $137
million, associated with non-U.S. AFS debt
securities; and
a pre-tax net unrealized loss of $9 million
debt
associated with
securities.
non-U.S. HTM
As of December 31, 2021,
the underlying
for non-U.S. MBS and ABS primarily
collateral
included Australian, U.K., Netherlands, Spanish and
listed under
Italian mortgages. The securities
“Canada” were composed of Canadian government
securities and provincial bonds, corporate debt and
non-U.S. agency securities. The securities listed
under “France” were composed of sovereign bonds,
corporate debt, covered bonds, ABS and Non-U.S.
agency securities. The securities listed under “Japan”
Japanese
were
government securities.
substantially
composed
of
Municipal Obligations
We carried approximately $1.3 billion of
municipal securities classified as state and political
subdivisions in our investment securities portfolio as
of December 31, 2021, as shown in Table 20:
Carrying Values of Investment Securities, all of which
were classified as AFS. As of December 31, 2021, we
also provided approximately $9.0 billion of credit and
liquidity
issuers.
municipal
to
TABLE 24: STATE AND MUNICIPAL OBLIGORS(1)
facilities
(Dollars in millions)
December 31, 2021
State of Issuer:
Texas
California
New York
Massachusetts
Tennessee
Total
December 31, 2020
State of Issuer:
Texas
California
New York
Massachusetts
Total
Total
Municipal
Securities(2)
Credit and
Liquidity
Facilities(2)
Total
% of Total
Municipal
Exposure
$
221 $
2,357 $ 2,578
25 %
108
271
245
—
2,005
1,112
696
491
2,113
1,383
941
491
21
14
9
5
$
845 $
6,661 $ 7,506
$
268 $
2,282 $ 2,550
23 %
113
297
382
2,174
1,363
927
2,287
1,660
1,309
21
15
12
$
1,060 $
6,746 $ 7,806
(1) Represented 5% or more of our aggregate municipal credit exposure of approximately
$10.22 billion and $11.06 billion across our businesses as of December 31, 2021 and
December 31, 2020, respectively.
(2) Includes municipal loans which are also presented within Table 26: U.S. and Non-U.S.
Loans .
Our aggregate municipal securities exposure
presented in Table 24: State and Municipal Obligors,
concentrated primarily with highly-rated
was
counterparties, with approximately 88% of
the
obligors rated “AAA” or “AA” as of December 31,
2021. As of that date, approximately 26% and 74% of
our aggregate municipal securities exposure was
associated with general obligation and revenue
bonds, respectively. The portfolios are also diversified
geographically, with the states that represent our
largest exposures widely dispersed across the U.S.
Additional
to our
information with
assessment of impairment of our municipal securities
is provided in Note 3 to the consolidated financial
statements in this Form 10-K.
respect
State Street Corporation | 79
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 25: CONTRACTUAL MATURITIES AND YIELDS
As of December 31, 2021
Under 1 Year
1 to 5 Years
6 to 10 Years
Over 10 Years
Total
(Dollars in millions)
Available-for-sale(1):
U.S. Treasury and federal agencies:
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Direct obligations
$ 1,976
.16 % $ 14,912
.68 % $ 1,051
1.49 % $
—
— % $ 17,939
Mortgage-backed securities
73
3.49
846
1.37
7,620
.38
9,669
2.07
18,208
Total U.S. treasury and federal
agencies
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Non-U.S. sovereign, supranational
and non-U.S. agency
Other
Total non-U.S. debt securities
Asset-backed securities:
Student loans
Collateralized loan obligations
Non-agency CMBS and RMBS
Other
Total asset-backed securities
State and political subdivisions(2)
Other U.S. debt securities
Total
Held-to-maturity(1):
U.S. Treasury and federal agencies:
2,049
15,758
164
302
4,480
826
5,772
115
147
—
—
262
180
1,002
$ 9,265
.76
.60
4.43
4.52
1.67
1.07
—
—
5.52
1.68
527
1,041
16,336
1,943
19,847
—
483
—
—
483
512
1,699
$ 38,299
.51
.35
3.44
3.34
—
1.02
—
—
4.75
2.23
8,671
33
454
2,717
275
3,479
.38
.54
2.40
3.76
—
—
1,084
1.08
—
91
1,175
499
43
—
.88
4.88
3.07
9,669
36,147
1,271
290
14
54
1,629
96
441
52
—
589
81
—
.93
.24
1.41
2.22
.32
1.33
3.57
—
4.87
—
1,995
2,087
23,547
3,098
30,727
211
2,155
52
91
2,509
1,272
2,744
$ 13,867
$ 11,968
$ 73,399
Direct obligations
$ 2,150
1.73 % $
Mortgage-backed securities
148
2.62
3
393
396
.70 % $
1
.63 % $
16
.57 % $ 2,170
3.14
4,651
1.90
28,289
2.18
33,481
4,652
28,305
35,651
Total U.S. treasury and federal
agencies
Non-U.S. debt securities:
Non-U.S. sovereign, supranational
and non-U.S. agency
Total non-U.S. debt securities
Asset-backed securities:
Student loans
Non-agency CMBS and RMBS
Total asset-backed securities
2,298
345
345
341
87
428
.59
.43
1.35
1,218
1,218
2.30
.68
.83
48
144
192
1
1
971
—
971
Total
$ 3,071
$ 1,806
$ 5,624
(1) The maturities of MBS, ABS and CMOs are based on expected principal payments.
(2) Yields were calculated on a FTE basis, using applicable statutory tax rates (21.0% as of December 31, 2021).
.50
1.02
—
—
—
—
3,548
.95
76
1.34
3,624
$ 31,929
1,564
1,564
4,908
307
5,215
$ 42,430
State Street Corporation | 80
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Loans
TABLE 26: U.S. AND NON- U.S. LOANS
(In millions)
Domestic(1):
Commercial and financial:
Fund Finance(2)
Leveraged Loans
Overdrafts
Other(3)
Commercial real estate
As of December 31,
2021
2020
2019
$ 12,396 $ 11,531 $ 10,270
3,106
1,796
2,262
2,554
2,923
1,894
2,688
2,096
3,342
1,739
3,411
1,766
Total domestic
22,114
21,132
20,528
Foreign(1):
Commercial and financial:
Fund Finance(2)
Leveraged Loans
Overdrafts
Other(3)
Total foreign
Total loans(4)
7,778
1,328
1,312
—
10,418
32,532
4,432
1,242
1,088
31
3,145
1,119
1,517
—
6,793
5,781
27,925
26,309
Allowance for loan losses
(87)
(122)
(74)
Loans, net of allowance
$ 32,445 $ 27,803 $ 26,235
Additional
commitments
consolidated financial statements in this Form 10-K.
information about
is provided
these unfunded
the
in Note 12
to
to
to Note 4
the consolidated
These leveraged loans, which are primarily rated
“speculative” under our internal risk-rating framework
(refer
financial
statements in this Form 10-K), are externally rated
“BBB,” “BB” or “B,” with approximately 94% and 85%
of the loans rated “BB” or “B” as of December 31,
2021 and December 31, 2020, respectively. Our
investment strategy involves generally limiting our
investment to larger, more liquid credits underwritten
by major global financial institutions, applying our
internal credit analysis process to each potential
investment and diversifying our exposure by
counterparty and industry segment. However, these
loans have significant exposure to credit losses
relative to higher-rated loans in our portfolio.
Additional information about all of our loan
segments, as well as underlying classes, is provided
in Note 4 to the consolidated financial statements in
this Form 10-K.
loans
to real money
loans, $6,397 million
(1) Domestic and foreign categorization is based on the borrower’s country of
domicile.
(2) Fund finance loans include primarily $9,147 million private equity capital call
finance
funds, $2,913 million
collateralized loan obligations in loan form and $1,387 million loans to business
development companies as of December 31, 2021, compared to $8,380 million
and $6,076 million private equity capital call finance loans, $6,391 million and
$6,040 million loans to real money funds and $821 million and $932 million loans
to business development companies as of December 31, 2020 and 2019,
respectively.
(3) Includes $1,784 million securities finance loans, $455 million loans to
municipalities and $23 million other loans as of December 31, 2021, $1,911 million
securities finance loans, $754 million loans to municipalities and $54 million other
loans as of December 31, 2020 and $2,537 million securities finance loans,
$848 million loans to municipalities and $26 million other loans as of December 31,
2019.
(4) As of December 30, 2021. Excluding overdrafts, floating rate loans totaled
$26,838 million and fixed rate loans totaled $2,583 million. We have entered into
interest rate swap agreements to hedge the forecasted cash flows associated with
LIBOR indexed floating-rate loans. See Note 10 to the consolidated financial
statements in this Form 10-K for additional details.
in
the
In the second quarter of 2021, in addition to our
investment portfolio, we began
CLOs
purchasing CLOs in loan form. The increase in the
commercial and financial segment as of December
31, 2021 compared to December 31, 2020 was
primarily driven by the purchase of $2,913 million
CLOs in loan form in 2021.
As of December 31, 2021 and December 31,
2020, our leveraged loans totaled approximately
$4.43 billion and $4.17 billion, respectively. We sold
$181 million leveraged loans in 2021, of which
$8 million remain unsettled and was held for sale as
of December 31, 2021. We recorded a charge-off
against the allowance for credit losses prior to the
sale of these loans of $2 million in 2021.
In addition, we had binding unfunded
commitments as of December 31, 2021 and
December 31, 2020 of $124 million and $149 million,
in such syndications.
respectively,
to participate
No
loans were modified
troubled debt
restructurings as of both December 31, 2021 and
December 31, 2020.
in
TABLE 27: CONTRACTUAL MATURITIES FOR LOANS
(In millions)
Domestic:
As of December 31, 2021
Under 1
year
1 to 5
years
5 to 15
years
Total
Commercial and financial
$ 10,188 $ 7,543 $ 1,829 $ 19,560
Commercial real estate
78
926
1,550
2,554
Total domestic
10,266
8,469
3,379
22,114
Foreign:
Commercial and financial
Total foreign
Total loans
3,973
3,973
3,311
3,311
3,134
10,418
3,134
10,418
$ 14,239 $ 11,780 $ 6,513 $ 32,532
TABLE 28: CLASSIFICATION OF LOAN BALANCES DUE
AFTER ONE YEAR
As of December 31, 2021
Loans with
predetermined
interest rates
Loans with floating
or adjustable
interest rates
(In millions)
Domestic:
Commercial and financial
$
384 $
Commercial real estate
Total domestic
Foreign:
Commercial and financial
Total foreign
Total loans
2,153
2,537
47
47
$
2,584 $
8,987
323
9,310
6,399
6,399
15,709
State Street Corporation | 81
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Allowance for credit losses
TABLE 29: ALLOWANCE FOR CREDIT LOSSES
(In millions)
2021
2020
2019
Years Ended December 31,
Allowance for credit losses:
Beginning balance(1)
Provision for credit losses
(funded commitments)(2)
Provisions for credit losses
(unfunded commitments)(3)
Provisions for credit losses
(investment securities and all
other)
Charge-offs(4)
FX translation
Ending balance
$
148 $
93 $
(29)
(2)
(2)
(2)
(5)
83
3
2
(41)
8
$
108 $
148 $
83
10
3
—
(3)
(2)
91
(1) Beginning January 1, 2020, we adopted ASC 326. Prior to 2020, we recognized
an allowance for loan losses under an incurred loss model. Upon adoption, we
increased the allowance and reduced retained earnings by approximately
$2 million. As such, the 2020 beginning balance differs from the December 31,
2019 ending balance.
(2) The provision for credit losses is primarily related to commercial and financial
loans.
(3) Prior to the adoption of ASC 326, the provision for unfunded commitments was
recorded within other expenses in the consolidated statement of income. Upon
adoption of ASC 326 in the first quarter of 2020, the provision for all assets within
scope is recorded within the provision for credit losses in the consolidated
statement of income.
(4) The charge-offs are related to commercial and financial loans.
We adopted ASC 326 in January 2020. The
provision for credit losses related to loans and other
financial assets held at amortized cost, including
investment securities classified as HTM and off-
balance sheet commitments, was a $33 million
release of credit reserves in 2021, compared to
$88 million reserve build in 2020.
As of December 31, 2021, approximately $61
million of our allowance for credit losses was related
to leveraged loans included in the commercial and
financial segment compared to $97 million as of
December 31, 2020. The reduction in the allowance
in 2021 was primarily driven by observed and
expected improvements in both credit quality and
economic outlook. As our view on current and future
economic scenarios change, our allowance for credit
losses related to these loans may be impacted
through a change to the provisions for credit losses,
reflecting credit migration within our loan portfolio, as
well as changes in management's economic outlook
as of year-end. The remaining $47 million and $51
million as of December 31, 2021 and 2020,
respectively, was related to other loans, commercial
real estate loans, off-balance sheet commitments and
other
financial assets held at amortized cost,
including investment securities held to maturity. As of
December 31, 2021, the allowance for credit losses
represented 0.3% of total loans.
An allowance for credit losses is recognized on
HTM securities upon acquisition of the security, and
on AFS securities when the fair value and expected
future cash flows of the investment securities are less
derived
are worse
than their amortized cost basis. Our assessment of
impairment involves an evaluation of economic and
security-specific factors. Such factors are based on
estimates,
by management, which
contemplate current market conditions and security-
specific performance. To the extent that market
than management's
conditions
or
expectations
bond
performance,
the credit-related component of
impairment, in particular, could increase and would be
recorded in the provision for credit losses. Additional
information with respect to the allowance for credit
losses, net impairment losses and gross unrealized
losses related to investment securities, is provided in
Note 3 to the consolidated financial statements in this
Form 10-K.
idiosyncratic
due
to
Cross-Border Outstandings
Cross-border outstandings are amounts payable
to us by non-U.S. counterparties which are
denominated
in U.S. dollars or other non-local
currency, as well as non-U.S. local currency claims
not funded by local currency liabilities. Our cross-
border outstandings consist primarily of deposits with
banks; loans and lease financing, including short-
duration advances; investment securities; amounts
related
interest rate contracts; and
securities finance. In addition to credit risk, cross-
border outstandings have the risk that, as a result of
political or economic conditions
in a country,
borrowers may be unable to meet their contractual
repayment obligations of principal and/or interest
when due because of
the unavailability of, or
restrictions on, FX needed by borrowers to repay their
obligations.
to FX and
independent credit
As market and economic conditions change, the
major
rating agencies may
downgrade U.S. and non-U.S. financial institutions
and sovereign issuers which have been, and may in
the future be, significant counterparties to us, or
whose financial instruments serve as collateral on
which we rely for credit risk mitigation purposes, and
may do so again in the future. As a result, we may be
exposed to increased counterparty risk, leading to
negative ratings volatility.
The cross-border outstandings presented
in
Table 30: Cross-border outstandings, represented
approximately 27% and 30% of our consolidated total
assets as of December 31, 2021 and December 31,
2020, respectively.
State Street Corporation | 82
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 30: CROSS-BORDER OUTSTANDINGS(1)
(In millions)
Investment
Securities and
Other Assets
Derivatives
and Securities
on Loan
Total Cross-
Border
Outstandings
December 31, 2021
Germany
$
30,263 $
202 $
United Kingdom
Japan
Canada
Australia
Luxembourg
Ireland
December 31, 2020
13,075
10,713
8,201
6,862
6,300
2,822
1,287
878
999
534
601
852
United Kingdom
$
18,880 $
1,797 $
Japan
Germany
Canada
Australia
Luxembourg
France
19,537
18,734
5,997
5,790
5,036
3,586
560
2,163
3,113
2,908
2,148
3,010
December 31, 2019
Germany
$
20,968 $
217 $
United Kingdom
Japan
Luxembourg
Canada
Australia
France
Ireland
Switzerland
13,764
11,121
3,399
2,955
3,100
2,813
1,988
1,724
1,468
555
668
783
597
240
641
589
30,465
14,362
11,591
9,200
7,396
6,901
3,674
20,677
20,097
20,897
9,110
8,698
7,184
6,596
21,185
15,232
11,676
4,067
3,738
3,697
3,053
2,629
2,313
(1) Cross-border outstandings included countries in which we do business, and which
amounted to at least 1% of our consolidated total assets as of the dates indicated.
As of December 31, 2021, aggregate cross-
border outstandings in France amounted to between
0.75% and 1% of our consolidated assets, at
approximately $2.83 billion. As of December 31,
2020, aggregate cross-border outstandings in each of
Switzerland and Ireland amounted to between 0.75%
and 1% of our consolidated assets, at approximately
$3.13 billion and $2.93 billion, respectively. As of
cross-border
December 31, 2019, aggregate
outstandings
to
between 0.75% and 1% of our consolidated assets, at
approximately $1.89 billion.
the Netherlands amounted
in
Risk Management
General
In the normal course of our global business
activities, we are exposed to a variety of risks, some
inherent in the financial services industry, others more
specific
risk
management framework focuses on material risks,
which include the following:
to our business activities. Our
•
•
•
•
credit and counterparty risk;
liquidity risk, funding and management;
operational risk;
information technology risk;
• market risk associated with our trading
activities;
• market risk associated with our non-trading
activities, which we refer to as asset and
liability management, and which consists
primarily of interest rate risk;
•
strategic risk;
• model risk; and
•
reputational, fiduciary and business conduct
risk.
Many of these risks, as well as certain factors
underlying each of these risks that could affect our
businesses
financial
statements, are discussed in detail under "Risk
Factors" in this Form 10-K.
consolidated
and
our
function.
risk management
The scope of our business requires that we
balance these risks with a comprehensive and well-
The
integrated
identification, assessment, monitoring, mitigation and
reporting of risks are essential to our financial
performance and successful management of our
businesses. These risks, if not effectively managed,
can result in losses to us as well as erosion of our
capital and damage to our reputation. Our approach,
including Board and senior management oversight
and a system of policies, procedures, limits, risk
measurement and monitoring and internal controls,
allows for an assessment of risks within a framework
for evaluating opportunities for the prudent use of
capital that appropriately balances risk and return.
Our objective is to optimize our return while
operating at a prudent level of risk. In support of this
objective, we have
risk appetite
framework that aligns our business strategy and
financial objectives with the level of risk that we are
willing to incur.
instituted a
Our risk management is based on the following
major goals:
•
•
•
•
•
A culture of risk awareness that extends
across all of our business activities;
identification,
The
quantification of our material risks;
classification
and
The establishment of our risk appetite and
associated
limits and policies, and our
compliance with these limits;
The establishment of a risk management
structure at the “top of the house” that
enables the control and coordination of risk-
taking across the business lines;
implementation of stress
testing
The
practices and a dynamic risk-assessment
capability;
State Street Corporation | 83
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•
•
A direct link between risk and strategic-
decision making processes and incentive
compensation practices; and
The overall flexibility to adapt to the ever-
changing business and market conditions.
Our
risk appetite
framework outlines
the
quantitative limits and qualitative goals that define our
risk appetite, as well as the responsibilities for
measuring and monitoring risk against limits, and for
reporting, escalating, approving and addressing
is
exceptions. Our
established by ERM, a corporate risk oversight group,
in conjunction with the MRAC and the RC of the
Board. The Board formally reviews and approves our
risk appetite statement annually, or more frequently
as required.
risk appetite
framework
The risk appetite framework describes the level
and types of risk that we are willing to accommodate
in executing our business strategy, and also serves
as a guide in setting risk limits across our business
units. In addition to our risk appetite framework, we
use stress testing as another important tool in our risk
management practice. Additional information with
respect to our stress testing process and practices is
provided under
this Management's
Discussion and Analysis.
“Capital”
in
Governance and Structure
We have an approach to risk management that
involves all levels of management, from the Board
and its committees, including its E&A Committee, RC,
the HRC and Tech & Ops Committee, to each
business unit and each employee. We allocate
responsibility for risk oversight so that risk/return
decisions are made at an appropriate level, and are
subject to robust and effective review and challenge.
the responsibility of each
Risk management
employee, and is implemented through three lines of
defense: the business units, which own and manage
is
the risks inherent in their business, are considered
the first line of defense; ERM and other support
functions, such as Compliance, Finance and Vendor
Management, provide the second line of defense.
Corporate Audit is the third line of defense, reports to
the E&A committee of the Board and is independent
from the business units, ERM and other corporate
independent
functions. Corporate Audit provides
assurance to the Board over the design and
operating effectiveness of
internal key controls
included within the risk management framework.
committees, Corporate Audit
The responsibilities for effective review and
challenge reside with senior managers, management
oversight
and,
ultimately, the Board and its committees. While we
believe that our risk management program is effective
in managing the risks in our businesses, internal and
external factors may create risks that cannot always
be identified or anticipated.
Corporate-level risk committees provide focused
oversight, and establish corporate standards and
policies for specific risks, including credit, sovereign
exposure, market, liquidity, operational, information
technology as well as new business products,
regulatory compliance and ethics, vendor risk and
model risks. These committees have been delegated
the responsibility to develop recommendations and
remediation strategies to address issues that affect or
have the potential to affect us.
We maintain a risk governance committee
structure which serves as the formal governance
mechanism through which we seek to undertake the
consistent identification, management and mitigation
of various risks facing us in connection with its
business activities. This governance structure is
enhanced and integrated through multi-disciplinary
involvement, particularly through ERM. The following
chart presents this structure.
State Street Corporation | 84
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management Risk Governance Committee Structure
Executive Management Committees:
Management Risk and Capital Committee
(MRAC)
Business Conduct
Committee
(BCC)
Technology and Operational Risk
Committee
(TORC)
Risk Committees:
Asset-Liability
Committee (ALCO)
Credit and Market Risk
Committee (CMRC)
Fiduciary Review
Committee
Operational Risk
Committee
Technology Risk
Committee
RRP Executive Review
Board
Basel Oversight
Committee
(BOC)
New Business and
Product Committee
Global Third Party
and Outsourcing Risk
Committee
Enterprise Continuity
Steering Committee
CCAR Steering
Committee
Model Risk Committee
(MRC)
Core Compliance and
Ethics Committee
Executive Operations
Management
Committee
Enterprise Data
Management
Committee
Country Risk
Committee
SSGA Risk Committee
Legal Entity
Oversight Committee
Regulatory Reporting
Oversight Committee
Conduct Standards
Committee
State Street Corporation | 85
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Enterprise Risk Management
The goal of ERM is to ensure that risks are
proactively identified, well-understood and prudently
managed in support of our business strategy. ERM
provides risk oversight, support and coordination to
allow for the consistent identification, measurement
and management of risks across business units
separate from the business units' activities, and is
responsible for the formulation and maintenance of
corporate-wide
risk management policies and
guidelines. In addition, ERM establishes and reviews
limits and,
in collaboration with business unit
management, monitors key risks. Ultimately, ERM
works to validate that risk-taking occurs within the risk
appetite statement approved by the Board and
conforms
limits and
to associated risk policies,
guidelines.
The Chief Risk Officer (CRO) is responsible for
our risk management globally, leads ERM and has a
dual reporting line to our CEO and the Board’s RC.
ERM manages its responsibilities globally through a
three-dimensional organization structure:
•
•
•
“Vertical” business unit-aligned risk groups
that support business managers with risk
management, measurement and monitoring
activities;
“Horizontal” risk groups that monitor the risks
that cross all of our business units (for
example, credit and operational risk); and
for
Risk oversight
international activities,
which combines intersecting “Verticals” and
“Horizontals” through a hub and spoke model
to provide important regional and legal entity
perspectives to the global risk framework.
this
top of
three-dimensional
Sitting on
organization structure
is a centralized group
responsible for the aggregation of risk exposures
across
regional
dimensions, for consolidated reporting, for setting the
corporate-level
and
associated limits and policies, and for dynamic risk
assessment across our business.
vertical, horizontal and
framework
appetite
risk
the
Board Committees
the Risk Committee
The Board has four committees which assist it in
discharging its responsibilities with respect to risk
management:
the
Examining and Audit Committee (E&A Committee),
the Human Resources Committee (HRC) and the
Technology and Operations Committee (Tech & Ops
Committee). Each of the principal committees of the
Board has oversight of ESG matters within their
respective scope of responsibilities, including climate-
related matters.
(RC),
The RC is responsible for oversight related to
risk management
including policies and procedures
the operation of our global
framework,
establishing
risk management governance and
processes and risk control infrastructure for our global
operations. The RC is responsible for reviewing and
discussing with management our assessment and
management of all risks applicable to our operations,
liquidity,
including credit, market,
business,
operational,
compliance and reputation risks, and related policies.
interest
technology,
regulatory,
rate,
In addition, the RC provides oversight of capital
policies, capital planning and balance sheet
resolution planning and monitors
management,
capital adequacy in relation to risk. The RC is also
responsible for discharging the duties and obligations
of the Board under applicable Basel and other
regulatory requirements.
The E&A Committee oversees management's
operation of our comprehensive system of internal
controls covering the integrity of our consolidated
financial statements and reports, compliance with
laws, regulations and corporate policies. The E&A
Committee acts on behalf of the Board in monitoring
and overseeing the performance of Corporate Audit
and in reviewing certain communications with banking
regulators. The E&A Committee has direct
responsibility for the appointment, compensation,
retention, evaluation and oversight of the work of our
firm,
independent
including sole authority for the establishment of pre-
approval policies and procedures
for all audit
engagements and any non-audit engagements.
registered public accounting
for
and
officers
participate
The HRC has direct responsibility
the
oversight of human capital management, all
compensation plans, policies and programs in which
executive
incentive,
retirement, welfare as well as equity plans in which
certain of our other employees participate. In addition,
the HRC oversees the alignment of our incentive
compensation arrangements with our safety and
soundness,
risk
the
related policies,
management objectives, and
arrangements and control processes consistent with
applicable related regulatory rules and guidance.
integration of
including
The Tech & Ops Committee leads and assists in
the Board’s oversight of technology and operational
risk management and the role of these risks in
executing our strategy and supporting our global
business requirements. The Tech & Ops Committee
reviews strategic initiatives from a technology and
operational risk perspective and
reviews and
approves technology-related risk matters. In addition,
Tech & Ops Committee reviews matters related to
information security and cybersecurity
corporate
programs, operational and technology resiliency, data
and access management and
risk
management.
third-party
State Street Corporation | 86
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Executive Management Committees
MRAC is the senior management decision-
making body for risk and capital issues, and oversees
our financial risks, our consolidated statement of
condition, and our capital adequacy, liquidity and
recovery and resolution planning. Its responsibilities
include:
•
•
•
•
The approval of the policies of our global risk,
management
capital
liquidity
frameworks,
risk appetite
framework;
including our
and
The monitoring and assessment of our capital
adequacy based on internal policies and
regulatory requirements;
firm-wide
The oversight of our
risk
identification, model risk governance, stress
testing and Recovery and Resolution Plan
programs; and
The ongoing monitoring and review of risks
undertaken within the businesses, and our
senior management oversight and approval
of risk strategies and tactics.
MRAC is co-chaired by our CRO and Chief
Financial Officer, who regularly present to the RC on
developments
risk environment and
the
performance trends in our key business areas.
in
BCC provides oversight of our business conduct
and culture risks and standards, our commitments to
clients and others with whom we do business, and
our potential reputational risks, on an enterprise-wide
basis. Management considers adherence to high
ethical standards to be critical to the success of our
business and to our reputation. The BCC is co-
chaired by our Chief Compliance Officer and our
General Counsel.
TORC provides oversight of, and assesses the
effectiveness of, corporate-wide
technology and
operational risk management programs, and reviews
to manage and control
areas of
technology and operational risk consistently across
the organization. TORC is co-chaired by the Chief
Operating Officer and the Chief Risk Officer.
Risk Committees
improvement
The
following
risk committees, under
the
oversight of the respective executive management
committees, have
for
focused
oversight of specific areas of risk management:
responsibilities
Management Risk and Capital Committee
•
ALCO is the senior corporate oversight and
decision-making body
for balance sheet
strategy, Global Treasury business activities
and risk management for interest rate risk,
liquidity risk and non-trading market risk.
ALCO’s
responsibilities are
designed to be complementary to, and in
roles and
•
•
•
coordination with the MRAC, which approves
the corporate risk appetite and associated
balance sheet strategy;
for our
CMRC is the independent risk oversight and
decision-making body
credit,
counterparty, and trading-related activities.
The CMRC is responsible, as part of the
second line of defense within ERM, for
overseeing alignment of these activities with
our appetite for risk and prevailing policy and
guidelines. This committee also serves as a
forum to discuss, address, and escalate
material risk issues;
related
BOC provides oversight and governance over
requirements,
regulatory
Basel
assesses compliance with respect to Basel
regulations and approves all material
methodologies and changes, policies and
reporting;
The Recovery and Resolution Planning
Executive Review Board oversees
the
development of recovery and resolution plans
as required by banking regulators;
including
• MRC monitors the overall level of model risk
and provides oversight of
the model
governance process pertaining to financial
the validation of key
models,
models and the ongoing monitoring of model
performance. The MRC may also, as
appropriate, mandate remedial actions and
to
compensating controls
models to address modeling deficiencies as
well as other issues identified;
to be applied
•
•
•
the stress
The CCAR Steering Committee provides
tests
primary supervision of
performed in conformity with the Federal
Reserve's CCAR process and the Dodd-
Frank Act, and is responsible for the overall
management, review, and approval of all
material assumptions, methodologies, and
results of each stress scenario;
for
committee
The State Street Global Advisors Risk
Committee is the most senior oversight and
decision making
risk
management within State Street Global
Advisors; the committee is responsible for
overseeing the alignment of State Street
Global Advisors' strategy, and risk appetite,
as well as alignment with our corporate-wide
strategies and risk management standards;
and
The Country Risk Committee oversees the
identification,
assessment, monitoring,
reporting and mitigation, where necessary, of
country risks.
State Street Corporation | 87
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•
is
The Regulatory Reporting Oversight
Committee
for providing
responsible
oversight of regulatory reporting and related
report
and
accountabilities.
governance
processes
Business Conduct Committee
•
•
•
•
•
The Fiduciary Review Committee reviews
and assesses the fiduciary risk management
programs of those units in which we serve in
a fiduciary capacity;
The New Business and Product Committee
provides oversight of the evaluation of the
risk inherent in proposed new products or
services and new business, and extensions
of existing products or services, evaluations
including economic justification, material risk,
legal
compliance,
and
regulatory
considerations, and capital and
liquidity
analyses;
The Core Compliance and Ethics Committee
provides
review and oversight of our
compliance programs, including our culture of
compliance and high standards of ethical
behavior;
The Legal Entity Oversight Committee
establishes standards with respect to the
governance of our legal entities, monitors
adherence to those standards, and oversees
the ongoing evaluation of our legal entity
structure,
formation,
maintenance and dissolution of legal entities;
and
including
the
The Conduct Standards Committee provides
oversight of our enforcement of employee
conduct standards.
Technology and Operational Risk Committee
•
•
The Operational Risk Committee, along with
the support of regional business or entity-
specific working groups and committees, is
responsible for oversight of our operational
risk programs, including determining that the
implementation of
is
designed to identify, manage and control
operational risk in an effective and consistent
manner across the firm;
those programs
is
The Technology Risk Committee
responsible for the global oversight, review
and monitoring of operational, legal and
regulatory compliance and reputational risk
that may result in a significant change to our
Information Technology risk profile or a
material financial loss or reputational impact
to global technology services. The Committee
serves as a forum to provide regular reporting
•
•
•
•
to TORC and escalate technology risk and
control issues to TORC, as appropriate;
Continuity
Enterprise
Steering
The
Committee considers matters pertaining to
continuity and
including
related
oversight in determining the direction of the
continuity program;
risks,
the
third
party
strategy,
transparent
for
The Global Third Party and Outsourcing Risk
Committee is responsible for overseeing a
clear and
framework and
identification,
effective processes
assessment, and ongoing management of
third party and outsourcing-related risks. This
committee is also a decision-making body for
risk
outsourcing
acceptance, and the end-to-end third party
management process, including the oversight
of appropriate controls and risk mitigants that
comply with applicable regulatory standards;
The Executive Operations Management
Committee is a forum for the development of
strategy, decision-making, and escalation for
operations, regulatory remediation, product
management, technology, and the operating
model; and
The Enterprise Data Management Committee
oversees
data
management strategy, provides independent
oversight of the programs associated with
enterprise-wide data management, serves as
an escalation point for material and emerging
issues,
enterprise-wide data management
and determines / oversees enterprise-wide
data management priorities and strategy.
enterprise-wide
the
Credit Risk Management
Core Policies and Principles
We define credit risk as the risk of financial loss
if a counterparty, borrower or obligor, collectively
referred to as a counterparty, is either unable or
unwilling to repay borrowings or settle a transaction in
accordance with underlying contractual terms. We
assume credit risk in our traditional non-trading
lending activities, such as overdrafts, loans and
contingent commitments, in our investment securities
portfolio, where recourse to a counterparty exists, and
in our direct and indirect trading activities, such as
securities purchased under a resale agreement,
principal securities lending and foreign exchange and
indemnified agency securities
lending. We also
assume credit risk in our day-to-day treasury and
securities and other settlement operations, in the form
of deposit placements and other cash balances, with
central banks or private sector institutions and fees
receivables.
We distinguish between three major types of
credit risk:
State Street Corporation | 88
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•
•
•
Default risk - the risk that a counterparty fails
to meet its contractual payment obligations;
Country risk - the risk that we may suffer a
loss, in any given country, due to any of the
following reasons: deterioration of economic
conditions, political and social upheaval,
nationalization and appropriation of assets,
government repudiation of
indebtedness,
exchange controls and disruptive currency
depreciation or devaluation; and
Settlement risk - the risk that the settlement
or clearance of transactions will fail, which
arises whenever the exchange of cash,
securities and/or other assets
is not
simultaneous.
The acceptance of credit risk by us is governed
by corporate policies and guidelines, which include
standardized procedures applied across the entire
organization. These policies and guidelines include
specific requirements related to each counterparty's
risk profile; the markets served; counterparty, industry
and
regulatory
compliance. These policies and procedures also
implement a number of core principles, which include
the following:
concentrations;
country
and
counterparty,
• We measure and consolidate credit risks to
of
each
counterparties, in accordance with a “one-
obligor” principle
risks
across our business units;
that aggregates
group
or
•
•
ERM reviews and approves all material
extensions of credit, and material changes
to such extensions of credit (such as
changes
term, collateral structure or
covenants), in accordance with assigned
credit-approval authorities;
in
and
and
training,
Credit-approval authorities are assigned to
individuals according to their qualifications,
these
experience
authorities are periodically reviewed. Our
largest exposures require approval by the
Credit Committee, a sub-committee of the
CMRC. With respect to small and low-risk
extensions of credit to certain types of
counterparties, approval authority may be
granted to individuals outside of ERM;
• We seek
limit undue
to avoid or
concentrations of risk. Counterparty (or
groups of counterparties), industry, country
and product-specific concentrations of risk
are subject to frequent review and approval
in accordance with our risk appetite;
• We determine
counterparties
the creditworthiness of
risk
through a detailed
assessment, including the use of internal
risk-rating methodologies;
• We review all extensions of credit and the
creditworthiness of counterparties at least
annually. The nature and extent of these
reviews are determined by the size, nature
and term of the extensions of credit and the
creditworthiness of the counterparty; and
• We subject all corporate policies and
guidelines to annual review as an integral
part of our periodic assessment of our risk
appetite.
Our corporate policies and guidelines require
that the business units which engage in activities that
give rise to credit and counterparty risk comply with
procedures that promote the extension of credit for
legitimate business purposes; are consistent with the
maintenance of proper credit standards; limit credit-
related losses; and are consistent with our goal of
maintaining a strong financial condition.
Structure and Organization
The Credit and Global Markets Risk group within
ERM is responsible for the assessment, approval and
monitoring of credit risk across our business. The
group is managed centrally, has dedicated teams in a
number of locations worldwide, and is responsible for
related policies and procedures, and for our internal
credit-rating systems and methodologies. In addition,
the group, in conjunction with the business units,
establishes measurements and limits to control the
amount of credit risk accepted across its various
business activities, both at the portfolio level and for
each
of
counterparty
counterparties, to individual sectors, and also to
counterparties by product and country of risk. These
measurements and limits are reviewed periodically,
but at least annually.
individual
group
or
for
In conjunction with other groups in ERM, the
Credit and Global Markets Risk group is jointly
implementation and
responsible
risk measurement and
oversight of our credit
management
and
including
systems,
assessment systems, quantification systems and the
reporting framework.
the design,
data
Various key committees within our company are
responsible for the oversight of credit risk and
associated credit risk policies, systems and models.
All credit-related activities are governed by our risk
appetite framework and our credit risk guidelines,
which define our general philosophy with respect to
credit risk and the manner in which we control,
manage and monitor such risks.
The previously described CMRC (refer to "Risk
Committees") has primary responsibility
the
oversight, review and approval of the credit risk
for
State Street Corporation | 89
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
guidelines and policies. Credit risk guidelines and
policies are reviewed periodically, but at
least
annually.
responsibility
The Credit Committee, a sub-committee of the
CMRC, has
for assigning credit
authority and approving the largest and higher-risk
extensions of credit to individual counterparties or
groups of counterparties.
CMRC provides periodic updates to MRAC and
the Board's RC.
Credit Ratings
We perform initial and ongoing reviews to
exercise due diligence on the creditworthiness of our
counterparties when conducting any business with
them or approving any credit limits.
risk-rating
This due diligence process generally includes
the assignment of an internal credit rating, which is
determined by the use of internally developed and
validated methodologies, scorecards and a 15-grade
rating scale. This risk-rating process incorporates the
use of
in conjunction with
tools
management judgment; qualitative and quantitative
inputs are captured in a replicable manner and,
following a formal review and approval process, an
internal credit rating based on our rating scale is
assigned. We generally rate our counterparties
individually, although some counterparties defined by
us as low-risk are rated on a pooled basis. Credit
ratings are reviewed and approved by the Credit and
Global Markets Risk group or its delegates. We
evaluate and rate the credit risk of our counterparties
on an ongoing basis. To facilitate comparability
across the portfolio, counterparties within a given
sector are rated using a risk-rating tool developed for
that sector.
Our risk-rating methodologies are approved for
use by the Portfolio Risk Committee, a subcommittee
of the CMRC, after completion of internal model
validation processes, and are subject to an annual
review, including re-validation.
Risk Parameter Estimates
Our internal risk-rating system promotes a clear
and consistent approach to the determination of
appropriate credit risk classifications for our credit
counterparties and exposures, tracking the changes
in risk associated with these counterparties and
exposures over time. This capability enhances our
ability
risk
to more accurately calculate both
exposures and capital, enabling better strategic
decision making across the organization.
More specifically, our internal risk rating system
is used for the following purposes:
•
The assessment of the creditworthiness of
new counterparties and, in conjunction with
our risk appetite statement, the development
of appropriate credit limits for our products
and services,
foreign
including
exchange, securities finance, placements
and repurchase agreements;
loans,
The automation of limit approvals for certain
low-risk counterparties, as defined in our
the
credit
counterparty’s probability-of-default;
risk guidelines, based on
The development of approval authority
matrices based on PD; riskier counterparties
with higher PDs require higher levels of
approval for a comparable PD and limit size
compared to less risky counterparties with
lower PDs;
The analysis of risk concentration trends
using historical PD and exposure-at-default
(or EAD), data;
the
review of
level of
The determination of
short-duration
management
riskier
advances depending on PD;
counterparties with higher
rating class
values generally trigger higher levels of
for comparable
management escalation
short-duration advances compared to less
risky counterparties with lower rating-class
values;
The monitoring of credit facility utilization
the
levels using EAD
identification
where
of
counterparties have exceeded limits;
values and
instances
comparison of
The aggregation and
counterparty exposures with risk appetite
levels
if businesses are
maintaining appropriate risk levels; and
to determine
The determination of our regulatory capital
requirements for the AIRB set forth in the
Basel framework.
•
•
•
•
•
•
•
Credit Risk Mitigation
We seek to limit our credit exposure and reduce
any potential credit losses through the use of various
types of credit risk mitigation. The Basel III final rule
permits us to reflect the application of credit risk
mitigation when it meets the standards outlined
therein. Examples of forms of credit risk mitigation
include collateral, netting, guarantees and secured
interest in non-financial assets. Where possible, we
apply the recognition of collateral, guarantees and
secured interest over non-financial assets to mitigate
overall risk within our counterparty credit portfolio.
While credit default swaps are permitted under the
Basel III final rule, we do not actively use credit
default swaps as a risk mitigation tool.
State Street Corporation | 90
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Collateral
In many parts of our business, we regularly
require or agree for collateral to be received from or
provided to clients and counterparties in connection
with contracts that incur credit risk. In our trading
businesses, this collateral is typically in the form of
cash, as well as highly-rated and/or liquid securities
(i.e. government securities and other bonds or equity
securities). Credit risks
in our non-trading and
securities finance businesses are also often secured
by bonds and equity securities and by other types of
assets. Collateral serves to reduce the risk of loss
inherent in an exposure. However, changing market
values of
the collateral we hold, unexpected
increases in the credit exposure to a client or
counterparty, reductions in the value or change in the
type of securities held by us, as well as operational
errors or errors in the manner in which we seek to
exercise our rights, may reduce the risk mitigation
effects of collateral or result in other security interests
not being effective
reduce potential credit
exposure. While collateral is often an alternative
the
source of repayment,
requirement within our policies and guidelines for
high-quality underwriting standards. We also may
choose to incur credit exposure without the benefit of
collateral or other risk mitigating credits rights.
it does not replace
to
that
Our credit risk guidelines require
the
collateral we accept for risk mitigation purposes is of
high quality, can be reliably valued and is supported
by a valid security interest that permits liquidation if or
when required. Generally, when collateral is of lower
quality, more difficult to value or more challenging to
liquidate, higher discounts to market values are
applied for the purposes of measuring credit risk. For
certain less liquid collateral, longer liquidation periods
are assumed when determining the credit exposure.
All types of collateral are assessed regularly by
ERM, as is the basis on which the collateral is valued.
Our assessment of collateral, including the ability to
liquidate collateral in the event of a counterparty
default, and also with regard to market values of
collateral under a variety of hypothetical market
integral component of our
conditions,
assessment of risk and approval of credit limits. We
also seek to identify, limit and monitor instances of
"wrong-way" risk, where a counterparty’s risk of
default is positively correlated with the risk of our
collateral eroding in value.
is an
We maintain policies and procedures requiring
that documentation used to collateralize a transaction
is legal, valid, binding and enforceable in the relevant
jurisdictions. We also conduct legal reviews to assess
whether our documentation meets these standards
on an ongoing basis.
Netting
Netting is a mechanism that allows institutions
and counterparties to net offsetting exposures and
payment obligations against one another through the
use of qualifying master netting agreements. A master
netting agreement allows
for certain rights and
remedies upon a counterparty default, including the
right to net obligations arising under derivatives or
other transactions under such agreement. In such an
event, the netting of obligations would result in a
single net claim owed by, or to, the counterparty. This
is commonly referred to as "close-out netting,” and is
pursued wherever possible. We may also enter into
master agreements that allow for the netting of
amounts payable on a given day and in the same
currency, reducing our settlement risk. This
is
commonly referred to as “payment netting,” and is
widely used in our foreign exchange activities.
As with collateral, we have policies and
procedures in place to apply close-out and payment
netting only to the extent that we have verified legal
validity and enforceability of the master agreement. In
the case of payment netting, operational constraints
may preclude us from reducing settlement risk,
notwithstanding the legal right to require the same
under the master netting agreement. In the event we
to operational constraints,
become unable, due
in accounting
actions by
related
principles,
interpretations) or other factors, to net some or all of
our offsetting exposures and payment obligations
under those agreements, we would be required to
gross up our assets and liabilities on our statement of
condition and our calculation of RWA, accordingly.
This would result in a potentially material change in
our regulatory ratios, including LCR, and present
increased
asset-and-liability
management and operational risks, some of which
could be material.
regulators, changes
regulation
law
liquidity,
credit,
(or
or
Guarantees
A guarantee is a financial instrument that results
in credit support being provided by a third party, (i.e.,
the protection provider) to the underlying obligor (the
beneficiary of the provided protection) on account of
an exposure owing by the obligor. The protection
provider may support the underlying exposure either
in whole or in part. Support of this kind may take
different forms. Typical forms of guarantees provided
to us include financial guarantees, letters of credit,
undertaking
acceptances,
bankers’
agreement contracts and insurance.
purchase
under
guarantees
We have established a review process
to
applicable
evaluate
III
requirements of our policies and Basel
requirements. Governance
is
this evaluation
covered under policies and procedures that require
regular reviews of documentation, jurisdictions and
credit quality of protection providers.
the
for
State Street Corporation | 91
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Credit Limits
Central to our philosophy for our management of
credit risk is the approval and imposition of credit
limits, against which we monitor the actual and
potential future credit exposure arising from our
business activities with counterparties or groups of
counterparties. Credit limits are a reflection of our risk
appetite, which may be determined by
the
creditworthiness of the counterparty, the nature of the
risk inherent in the business undertaken with the
counterparty, or a combination of relevant credit
factors. Our risk appetite for certain sectors and
certain countries and geographic regions may also
influence the level of risk we are willing to assume to
certain counterparties.
The analysis and approval of credit limits is
undertaken
in a consistent manner across our
businesses, although the nature and extent of the
analysis may vary, based on the type, term and
magnitude of the risk being assumed. Credit limits
and underlying exposures are assessed and
measured on both a gross and net basis where
appropriate, with net exposure determined by
deducting the value of any collateral held. For certain
types of risk being assumed, we will also assess and
measure exposures under a variety of hypothetical
market conditions. Credit limit approvals across our
business are undertaken by the Credit and Global
Markets Risk group, by individuals to whom credit
authority has been delegated, or by the Credit
Committee.
Credit limits are re-evaluated annually, or more
frequently as needed, and are revised periodically on
prevailing and anticipated market conditions, changes
in counterparty or country-specific credit ratings and
outlook, changes in our risk appetite for certain
counterparties,
and
enhancements
the measurement of credit
utilization.
countries,
sectors
or
to
Reporting
Ongoing active monitoring and management of
our credit risk is an integral part of our credit risk
management framework. We maintain management
information systems to identify, measure, monitor and
report credit risk across businesses and legal entities,
enabling ERM and our businesses to have timely
access to accurate information on credit limits and
exposures. Monitoring
the
dimensions of counterparty, industry, country and
product-specific risks to facilitate the identification of
concentrations of risk and emerging trends.
is performed along
Key aspects of this credit risk reporting structure
include governance and oversight groups and policies
that define standards for the reporting of credit risk,
data aggregation and sourcing systems.
developments
The Credit and Global Markets Risk group
routinely assesses the composition of our overall
credit risk portfolio for alignment with our stated risk
appetite. This assessment includes routine analysis
and reporting of the portfolio, monitoring of market-
based indicators, the assessment of industry trends
of
and
and
concentrated risks. The Credit and Global Markets
Risk group is also responsible, in conjunction with the
business units, for defining the appetite for credit risk
in the major sectors in which we have a concentration
of business activities. These sector-level risk appetite
statements, which
include counterparty selection
criteria and granular underwriting guidelines, are
reviewed periodically and approved by the CMRC.
reviews
regular
Monitoring
Regular surveillance of credit and counterparty
risks is undertaken by our business units, the Credit
and Global Markets Risk group and designees with
ERM, allowing for frequent and extensive oversight.
This surveillance process includes, but is not limited
to, the following components:
•
•
formal
review of
Annual Reviews. A
counterparties is conducted at least annually
and includes a thorough review of operating
performance, primary risk factors and our
internal credit risk rating. This annual review
also
includes a review of current and
proposed credit limits, an assessment of our
ongoing risk appetite and verification that
remains
supporting
effective.
legal documentation
utilizing
frequently,
Interim Monitoring. Monitoring of our largest
and riskiest counterparties is undertaken
financial
more
information, market indicators and other
relevant credit and performance measures.
The nature and extent of
interim
monitoring is individually tailored to certain
counterparties and/or industry sectors to
identify material changes to the risk profile of
a counterparty (or group of counterparties)
and assign an updated internal risk rating in
a timely manner.
this
list"
We maintain an active "watch
that warrants closer monitoring of
for all
counterparties. The watch list status denotes a
concern with some aspect of a counterparty's risk
profile
the
counterparty's financial performance and related risk
factors. Our ongoing monitoring processes are
designed
identification of
is
counterparties
deteriorating; any counterparty may be placed on the
watch list by ERM at its sole discretion.
creditworthiness
the early
facilitate
whose
to
Counterparties on
list generally
correspond with the non-investment grade or near
the watch
State Street Corporation | 92
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
non-investment grade ratings established by the
major independent credit-rating agencies. The watch
list also includes any counterparties rated “Special
Mention,” “Substandard,” “Doubtful” and “Loss.”
The Credit and Global Markets Risk group
maintains primary responsibility for our watch list
processes, and generates a quarterly report of all
watch list counterparties. The watch list is formally
least on a quarterly basis, with
reviewed at
participation
and
from
representatives from the business units and our
corporate finance and legal groups as appropriate.
These meetings include a review of individual watch
list counterparties, together with credit limits and
prevailing exposures, and are focused on actions to
contain, reduce or eliminate the risk of loss to us.
Identified actions are documented and monitored.
senior ERM
staff,
Controls
GCR provides a separate level of surveillance
and oversight over the integrity of our credit risk
management processes, including the internal risk-
rating system. GCR reviews counterparty credit
ratings for all identified sectors on an ongoing basis.
GCR is subject to oversight by the CMRC, and
provides periodic updates to the Board’s RC.
Specific activities of GCR include the following:
•
•
•
•
•
•
and
separate
objective
Perform
assessments of our credit and counterparty
exposures to determine the nature and
extent of risk undertaken by the business
units;
Execute periodic credit process and credit
product reviews to assess the quality of
credit analysis, compliance with policies,
regulation,
guidelines
transaction structures and underwriting
standards, and risk-rating integrity;
relevant
and
and
Identify
developing
counterparty, market and/or industry sector
trends to limit risk of loss and protect capital;
monitor
to
Deliver regular and
stakeholders,
results,
identified issues and the status of requisite
actions to remedy identified deficiencies;
formal reporting
exam
including
Allocate
assessments (on an as-needed basis); and
for specialized
resources
risk
Liaise with assurance partners and
regulatory personnel on matters relating to
risk rating, reporting and measurement.
Allowance for Credit Losses
We maintain an allowance for credit losses to
support our financial assets held at amortized cost.
We also maintain an allowance
for unfunded
commitments and letters of credit to support our off-
balance sheet credit exposure. The two components
together represent the Allowance for Credit Losses.
Review and evaluation of the adequacy of the
Allowance for Credit Losses is ongoing throughout
the year, but occurs at least quarterly, and is based,
among other factors, on our evaluation of the level of
risk in the portfolio and the estimated effects of our
forecasts on our counterparty risk. We utilize multiple
economic scenarios, consisting of a baseline, upside
and downside scenarios, to develop management's
forecast of expected losses.
The economic forecast utilized throughout 2021
reflects observed and expected improvements in both
credit quality and economic outlook. Allowance
estimates remain subject to continued model and
economic uncertainty and management may use
qualitative adjustments. If future data and forecasts
deviate relative to the forecasts utilized to determine
our allowance for credit losses as of December 31,
2021, or if credit risk migration is higher or lower than
forecasted for reasons independent of the economic
forecast, our allowance for credit losses will also
change.
Additional information about the allowance for
credit losses is provided in Note 4 to the consolidated
financial statements in this Form 10-K.
Liquidity Risk Management
Our liquidity framework contemplates areas of
potential risk based on our activities, size and other
appropriate risk-related factors. In managing liquidity
risk we employ limits, maintain established metrics
and early warning indicators and perform routine
stress testing to identify potential liquidity needs. This
process involves the evaluation of a combination of
internal and external scenarios which assist us in
measuring our liquidity position and in identifying
potential increases in cash needs or decreases in
available sources of cash, as well as the potential
impairment of our ability to access the global capital
markets.
the
federal
We manage our
funds market and
liquidity on a global,
consolidated basis. We also manage liquidity on a
stand-alone basis at our Parent Company, as well as
at certain branches and subsidiaries of State Street
Bank. State Street Bank generally has access to
markets and funding sources limited to banks, such
as
the Federal
Reserve's discount window. The Parent Company is
managed to a more conservative liquidity profile,
reflecting narrower market access. Additionally, the
Parent Company typically holds, or has direct access
to, primarily through SSIF, a direct subsidiary of the
Parent Company, and the support agreement, as
discussed
in
Business in this Form 10-K, enough cash to meet its
current debt maturities and cash needs, as well as
those projected over the next one-year period. Absent
"Supervision and Regulation"
in
State Street Corporation | 93
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
financial distress at the Parent Company, the liquid
assets available at SSIF continue to be available to
the Parent Company. As of December 31, 2021, the
value of our Parent Company's net liquid assets
totaled $482 million, compared with $492 million as of
December 31, 2020, which amount does not include
available liquidity through SSIF. As of December 31,
2021, our Parent Company and State Street Bank
had no senior notes or subordinated debentures
outstanding that will mature in the next twelve
months.
regulatory
As a SIFI, our
liquidity risk management
activities are subject to heightened and evolving
regulatory requirements, including interpretations of
requirements, under specific U.S. and
those
international regulations and also resulting
from
published and unpublished guidance, supervisory
activities, such as stress tests, resolution planning,
interactions.
examinations and other
Satisfaction of these requirements could, in some
cases, result in changes in the composition of our
investment portfolio, reduced NII or NIM, a reduction
level of certain business activities or
in
modifications to the way in which we deliver our
products and services. If we fail to meet regulatory
requirements to the satisfaction of our regulators, we
could receive negative regulatory stress test results,
incur a resolution plan deficiency or determination of
a non-credible resolution plan or otherwise receive an
adverse regulatory finding. Our efforts to satisfy, or
our failure to satisfy, these regulatory requirements
could materially adversely affect our business,
financial condition or results of operations.
the
Governance
responsible
Global Treasury
for our
is
management of liquidity. This includes the day-to-day
management of our global liquidity position, the
development and monitoring of early warning
indicators, key liquidity risk metrics, the creation and
the evaluation and
tests,
execution of stress
implementation of
the
regulatory
maintenance and execution of our liquidity guidelines
and contingency funding plan (CFP), and routine
management reporting to ALCO, MRAC and the
Board's RC.
requirements,
and management
Global Treasury Risk Management, part of ERM,
provides separate oversight over the identification,
of Global
communication
Treasury’s risks in support of our business strategy.
Global Treasury Risk Management reports to the
CRO. Global
Treasury Risk Management’s
responsibilities relative to liquidity risk management
include the development and review of policies and
guidelines;
to
adherence
risk guidelines and
the
associated reporting.
the monitoring of
to
liquidity
related
limits
Liquidity Framework
Our liquidity framework contemplates areas of
potential risk based on our activities, size and other
appropriate risk-related factors. In managing liquidity
risk we employ limits, maintain established metrics
and early warning indicators, and perform routine
stress testing to identify potential liquidity needs. This
process involves the evaluation of a combination of
internal and external scenarios which assist us in
measuring our liquidity position and in identifying
potential increases in cash needs or decreases in
available sources of cash, as well as the potential
impairment of our ability to access the global capital
markets.
We manage
to several
principles that are equally important to our overall
liquidity risk management framework:
liquidity according
•
•
•
Structural liquidity management addresses
the
liquidity by monitoring and directing
composition of our consolidated statement of
condition. Structural liquidity is measured by
metrics such as the percentage of total
wholesale funds to consolidated total assets,
and
the percentage of non-government
investment securities to client deposits. In
addition, on a regular basis and as described
below, our structural liquidity is evaluated
under various stress scenarios.
funding
requirements and
Tactical liquidity management addresses our
day-to-day
is
largely driven by changes in our primary
source of funding, which are client deposits.
Fluctuations
in client deposits may be
supplemented with short-term borrowings,
repurchase agreements, FHLB products and
certificates of deposit.
Stress
funding
testing and contingent
planning are longer-term strategic liquidity
risk management practices. Regular and ad
hoc liquidity stress testing are performed
under various severe but plausible scenarios
at the consolidated level and at significant
subsidiaries, including State Street Bank.
These tests contemplate severe market and
events specific to us under various time
horizons and severities. Tests contemplate
the impact of material changes in key funding
sources, credit ratings, additional collateral
requirements, contingent uses of funding,
systemic shocks to the financial markets and
operational failures based on market and
assumptions specific to us. The stress tests
evaluate the required level of funding versus
available sources in an adverse environment.
As stress
testing contemplates potential
forward-looking scenarios, results also serve
State Street Corporation | 94
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
as a trigger to activate specific liquidity stress
levels and contingent funding actions.
to
are
CFPs
assist
designed
senior
management with decision-making associated with
any contingency funding response to a possible or
actual crisis scenario. The CFPs define roles,
responsibilities and management actions to be taken
in the event of deterioration of our liquidity profile
caused by either an event specific to us or a broader
disruption in the capital markets. Specific actions are
linked to the level of stress indicated by these
measures or by management judgment of market
conditions.
Liquidity Risk Metrics
In managing our liquidity, we employ early
warning
indicators and metrics. Early warning
indicators are intended to detect situations which may
result in a liquidity stress, including changes in our
common stock price and the spread on our long-term
debt. Additional metrics
the
management of our consolidated statement of
condition and monitored as part of our routine liquidity
management include measures of our fungible cash
position, purchased wholesale funds, unencumbered
liquid assets, deposits and the total of investment
securities and loans as a percentage of total client
deposits.
that are critical
to
Asset Liquidity
improve
Central to the management of our liquidity is
asset liquidity, which consists primarily of HQLA.
HQLA is the amount of liquid assets that qualify for
inclusion in the LCR. As a banking organization, we
are subject to a minimum LCR under the LCR rule
approved by U.S. banking regulators. The LCR is
intended to promote the short-term resilience of
internationally active banking organizations, like us, to
improve the banking industry's ability to absorb
shocks arising from market stress over a 30 calendar
day period and
the measurement and
management of liquidity risk. The LCR measures an
institution’s HQLA against its net cash outflows.
HQLA primarily consists of unencumbered cash and
certain high quality liquid securities that qualify for
inclusion under the LCR rule. We report LCR to the
the quarters ended
Federal Reserve daily. For
December 31, 2021 and December 31, 2020, daily
average LCR for the Parent Company was 105% and
108%, respectively, with the lower daily average LCR
for the quarter ended December 31, 2021 driven
primarily by higher deposits. The Parent Company
LCR does not benefit from the increase in higher
deposits as their HQLA is partially restricted by a cap
on the HQLA from State Street Bank and Trust under
the U.S. LCR final rule as it prohibits the upstreaming
of liquidity to the Parent Company under stress. The
average HQLA for the Parent Company under the
LCR final rule definition was $159.36 billion and
the
$143.61 billion, post-prescribed haircuts,
for
quarters ended December 31, 2021 and December
31, 2020, respectively. The increase in average
HQLA for the quarter ended December 31, 2021,
compared to the quarter ended December 31, 2020,
was primarily due to a higher level of client deposits.
For the quarter ended December 31, 2021, LCR for
State Street Bank and Trust was approximately
129%. State Street Bank and Trust's LCR is higher
than the Parent Company's LCR, primarily due to
application of the transferability restriction in the LCR
final rule to the calculation of the Parent Company's
LCR. This restriction limits the HQLA used in the
calculation of the Parent Company's LCR to the
amount of net cash outflows of its principal banking
subsidiary (State Street Bank and Trust). This
the
transferability restriction does not apply
calculation of State Street Bank and Trust's LCR, and
therefore State Street Bank and Trust's LCR reflects
the benefit of all of its HQLA holdings.
in
We maintained average cash balances
in
excess of regulatory requirements governing deposits
with the Federal Reserve of approximately $83.48
billion at the Federal Reserve, the ECB and other
non-U.S. central banks
the quarter ended
December 31, 2021, and $75.68 billion for the quarter
ended December 31, 2020. The higher levels of
average cash balances with central banks reflect
higher levels of client deposits.
for
Liquid securities carried in our asset liquidity
include securities pledged without corresponding
advances from the Federal Reserve Bank of Boston
(FRBB), the FHLB, and other non-U.S. central banks.
State Street Bank is a member of the FHLB. This
membership allows for advances of liquidity in varying
terms against high-quality collateral, which helps
facilitate asset-and-liability management. As of
December 31, 2021 and December 31, 2020, we had
no outstanding borrowings from the FHLB.
Access to primary, intra-day and contingent
liquidity provided by these utilities is an important
source of contingent liquidity with utilization subject to
underlying conditions. As of December 31, 2021 and
December 31, 2020, we had no outstanding primary
credit borrowings from the FRBB discount window or
any other central bank facility.
In addition to the securities included in our asset
liquidity, we have significant amounts of other
unencumbered
These
securities are available sources of liquidity, although
not as rapidly deployed as those included in our asset
liquidity.
investment
securities.
The average fair value of total unencumbered
securities was $99.47 billion for the quarter ended
December 31, 2021, compared to $89.12 billion for
the quarter ended December 31, 2020.
State Street Corporation | 95
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Measures of liquidity include LCR and NSFR,
which are described in "Supervision and Regulation"
in Business in this Form 10-K.
Uses of Liquidity
Significant uses of our liquidity could result from
the following: withdrawals of client deposits; draw-
downs by our custody clients of lines of credit;
advances to clients to settle securities transactions;
increases in our investment and loan portfolios; or
other permitted purposes. Such circumstances would
generally arise under stress conditions including
deterioration in credit ratings. A recurring use of our
liquidity involves our deployment of HQLA from our
investment portfolio to post collateral to financial
institutions serving as sources of securities under our
enhanced custody program.
We had unfunded commitments to extend credit
with gross contractual amounts totaling $33.03 billion
and $34.21 billion and standby letters of credit
totaling $3.24 billion and $3.33 billion as of December
31, 2021 and December 31, 2020, respectively.
These amounts do not reflect the value of any
collateral. As of December 31, 2021, approximately
76% of our unfunded commitments to extend credit
and 43% of our standby letters of credit expire within
one year. Since many of our commitments are
expected to expire or renew without being drawn
upon,
the gross contractual amounts do not
necessarily represent our future cash requirements.
Information about our resolution planning and
the impact actions under our resolution plans could
have on our liquidity is provided in "Supervision and
Regulation" in Business in this Form 10-K.
Funding
Deposits
financial
finance and
cash management,
We provide products and services including
custody, accounting, administration, daily pricing, FX
services,
asset
investment
management, securities
advisory services. As a provider of these products
and services, we generate client deposits, which have
generally provided a stable, low-cost source of funds.
As a global custodian, clients place deposits with our
entities in various currencies. As of both December
31, 2021 and December 31, 2020, approximately
65% of our average total deposit balances were
denominated in U.S. dollars, approximately 15% in
EUR, 10% in GBP and 10% in all other currencies.
Short-Term Funding
liquidity
Our on-balance sheet liquid assets are also an
liquidity management
integral component of our
strategy. These assets provide
through
maturities of the assets, but more importantly, they
provide us with the ability to raise funds by pledging
the securities as collateral for borrowings or through
outright sales. In addition, our access to the global
capital markets gives us
to source
incremental funding from wholesale investors. As
discussed earlier under “Asset Liquidity,” State Street
Bank's membership in the FHLB allows for advances
of liquidity with varying terms against high-quality
collateral.
the ability
Short-term secured funding also comes in the
form of securities lent or sold under agreements to
repurchase. These transactions are short-term in
nature, generally overnight and are collateralized by
high-quality investment securities. These balances
were $1.58 billion and $3.41 billion as of December
31, 2021 and December 31, 2020, respectively.
State Street Bank currently maintains a line of
credit with a financial institution of CAD $1.40 billion,
or approximately $1.11 billion, as of December 31,
2021, to support its Canadian securities processing
operations. The
line of credit has no stated
termination date and is cancellable by either party
with prior notice. As of both December 31, 2021 and
December 31, 2020,
there was no balance
outstanding on this line of credit.
Long-Term Funding
current universal
We have the ability to issue debt and equity
securities under our
shelf
registration statement to meet current commitments
and business needs, including accommodating the
transaction and cash management needs of our
clients. The total amount remaining for issuance
under the registration statement is $3.75 billion as of
December 31, 2021. In addition, State Street Bank
also has current authorization from the Board to issue
up to $5 billion in unsecured senior debt.
On March 3, 2021, we issued $850 million
aggregate principal amount of 2.200% Senior
Subordinated Notes due 2031.
In September 2021, we completed a public
offering of approximately 21.7 million shares of our
common stock to provide partial funding for our
$3.5 billion planned acquisition of the BBH Investor
Services business. The offering price was $87.60 per
share and net proceeds totaled approximately $1.9
billion.
On November 18, 2021, we issued $500 million
aggregate principal amount of 1.684% Fixed-to-
Floating Rate Senior Notes due 2027.
State Street Corporation | 96
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Agency Credit Ratings
TABLE 31: CREDIT RATINGS
As of December 31, 2021
Moody’s
Investors
Service
Standard &
Poor’s
Fitch
State Street:
Senior debt
Subordinated debt
Junior subordinated
debt
Preferred stock
Outlook
State Street Bank:
Short-term deposits
Long-term deposits
Senior debt/Long-term
issuer
Subordinated debt
A
A-
BBB
BBB
Stable
A-1+
AA-
AA-
A
A1
A2
A3
Baa1
Stable
P-1
Aa1
Aa3
Aa3
AA-
A
NR
BBB+
Stable
F1+
AA+
AA
A+
Outlook
Stable
Stable
Stable
Our ability to maintain consistent access to
liquidity is fostered by the maintenance of high
investment grade ratings as measured by the major
independent credit rating agencies. Factors essential
to maintaining high credit ratings include:
•
•
•
•
•
•
•
diverse and stable core earnings;
relative market position;
strong risk management;
strong capital ratios;
diverse liquidity sources, including the global
capital markets and client deposits;
strong liquidity monitoring procedures; and
preparedness for current or future regulatory
developments.
High ratings limit borrowing costs and enhance
our liquidity by:
•
•
•
•
providing assurance for unsecured funding
and depositors;
increasing the potential market for our debt
and improving our ability to offer products;
serving markets; and
engaging in transactions in which clients
value high credit ratings.
A downgrade or reduction of our credit ratings
could have a material adverse effect on our liquidity
by restricting our ability to access the capital markets,
which could increase the related cost of funds. In
turn, this could cause the sudden and large-scale
withdrawal of unsecured deposits by our clients,
which could
to draw-downs of unfunded
commitments to extend credit or trigger requirements
under securities purchase commitments; or require
additional collateral or force terminations of certain
trading derivative contracts.
lead
A majority of our derivative contracts have been
into under bilateral agreements with
entered
counterparties who may require us to post collateral
or terminate the transactions based on changes in
our credit ratings. We assess the impact of these
arrangements by determining the collateral that would
be required assuming a downgrade by all rating
agencies. The additional collateral or termination
payments related to our net derivative liabilities under
these arrangements that could have been called by
counterparties in the event of a downgrade in our
the
credit
agreements
the
consolidated financial statements in this Form 10-K.
Other funding sources, such as secured financing
transactions and other margin requirements,
for
which there are no explicit triggers, could also be
adversely affected.
levels specified
in Note 10
ratings below
is provided
in
to
State Street Corporation | 97
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Contractual Cash Obligations and Other Commitments
The long-term contractual cash obligations included within Table 32: Long-Term Contractual Cash Obligations
were recorded in our consolidated statement of condition as of December 31, 2021, except for the interest portions
leases.
of
long-term
finance
debt
and
TABLE 32: LONG-TERM CONTRACTUAL CASH OBLIGATIONS
December 31, 2021
(In millions)
Long-term debt(1)(2)
Operating leases
Finance lease obligations(2)
Tax liability
Total contractual cash obligations
Payments Due by Period
Less than 1
year
1-3
years
4-5
years
Over 5
years
Total
$
$
— $
5,131 $
3,816 $
4,364 $
13,311
158
71
—
257
89
35
172
10
27
162
—
—
749
170
62
229 $
5,512 $
4,025 $
4,526 $
14,292
(1) Long-term debt excludes finance lease obligations (presented as a separate line item) and the effect of interest rate swaps. Interest payments were calculated at
the stated rate with the exception of floating-rate debt, for which payments were calculated using the indexed rate in effect as of December 31, 2021.
(2) Additional information about contractual cash obligations related to long-term debt and operating and finance leases is provided in Notes 9 and 20 to the
consolidated financial statements in this Form 10-K.
Total contractual cash obligations shown in Table 32: Long-Term Contractual Cash Obligations do not include:
• Obligations which will be settled in cash, primarily in less than one year, such as client deposits, federal
funds purchased, securities sold under repurchase agreements and other short-term borrowings.
Additional information about deposits, federal funds purchased, securities sold under repurchase
agreements and other short-term borrowings is provided in Note 8 to the consolidated financial
statements in this Form 10-K.
• Obligations related to derivative instruments because the derivative-related amounts recorded in our
consolidated statement of condition as of December 31, 2021 did not represent the amounts that may
ultimately be paid under the contracts upon settlement. Additional information about our derivative
instruments is provided in Note 10 to the consolidated financial statements in this Form 10-K. We have
obligations under pension and other post-retirement benefit plans, with additional information provided
in Note 19 to the consolidated financial statements in this Form 10-K, which are not included in Table
32: Long-Term Contractual Cash Obligations.
TABLE 33: OTHER COMMERCIAL COMMITMENTS
(In millions)
Indemnified securities financing
Unfunded credit facilities
Standby letters of credit
Purchase obligations(2)
Total commercial commitments
Duration of Commitment as of December 31, 2021
Less than
1 year
1-3
years
4-5
years
Over 5
years
Total amounts
committed(1)
$
385,740 $
— $
— $
— $
22,082
1,377
86
6,410
1,287
158
4,252
573
114
282
—
15
385,740
33,026
3,237
373
$
409,285 $
7,855 $
4,939 $
297 $
422,376
(1) Total amounts committed reflect participations to independent third parties, if any.
(2) Amounts represent obligations pursuant to legally binding agreements, where we have agreed to purchase products or services with a specific minimum quantity
defined at a fixed, minimum or variable price over a specified period of time.
Additional information about the commitments presented in Table 33: Other commercial commitments, except
for purchase obligations, is provided in Note 12 to the consolidated financial statements in this Form 10-K.
State Street Corporation | 98
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operational Risk Management
Overview
Operational risk is the risk of loss resulting from
inadequate or failed internal processes, people and
systems or from external events. Operational risk
encompasses fiduciary risk and legal risk. Fiduciary
risk is defined as the risk that we fail to properly
exercise our fiduciary duties in our provision of
products or services to clients. Legal risk is the risk of
loss resulting from failure to comply with laws and
contractual obligations.
Operational risk is inherent in the performance
of investment servicing and investment management
activities on behalf of our clients. Whether it be
fiduciary risk, risk associated with execution and
processing or other types of operational risk, a
consistent, transparent and effective operational risk
framework is key to identifying, monitoring and
managing operational risk.
We have established an operational
risk
framework that is based on three major goals:
•
Strong, active governance;
• Ownership and accountability; and
•
Consistency and transparency.
Governance
Our Board is responsible for the approval and
oversight of our overall operational risk framework. It
through
its TOPS, which reviews our
does so
operational
framework and approves our
risk
operational risk policy annually.
Our operational risk policy establishes our
approach to our management of operational risk
across our business. The policy
the
responsibilities of individuals and committees charged
with oversight of the management of operational risk,
and articulates a broad mandate
that supports
implementation of the operational risk framework.
identifies
ERM and other control groups provide the
the
oversight,
management and measurement of operational risk.
validation and
verification of
on
Executive management actively manages and
oversees our operational risk framework through
membership
risk management
various
committees, including MRAC, the BCC, TORC, the
the Executive
Operational Risk Committee,
the
Information Security Steering Committee,
Enterprise Continuity Steering Committee,
the
Compliance and Ethics Committee,
the Vendor
Management Lifecycle Executive Review Board and
the Fiduciary Review Committee, all of which
ultimately report to the appropriate committee of the
Board.
The Operational Risk Committee, chaired by the
global head of Operational Risk, provides cross-
business oversight of operational risk, operational risk
programs and
identify,
measure, manage and control operational risk in an
effective and consistent manner and reviews and
approves operational risk guidelines intended to
maintain a consistent implementation of our corporate
operational risk policy and framework.
implementation
their
to
Ownership and Accountability
We have
implemented our operational risk
framework to support the broad mandate established
by our operational risk policy. This
framework
represents an integrated set of processes and tools
that assists us in the management and measurement
of operational risk,
including our calculation of
required capital and RWA.
of
the Committee
The framework takes a comprehensive view and
integrates the methods and tools used to manage
and measure operational risk. The framework utilizes
aspects
of Sponsoring
Organizations of the Treadway Commission (COSO)
framework and other industry leading practices, and
is designed foremost to address our risk management
needs while complying with regulatory requirements.
The operational risk framework is intended to provide
a number of important benefits, including:
•
•
•
•
•
•
A common understanding of operational risk
management and its supporting processes;
The clarification of responsibilities for the
management of operational risk across our
business;
The alignment of business priorities with risk
management objectives;
The active management of risk and early
identification of emerging risks;
The consistent application of policies and the
collection of data for risk management and
measurement; and
The estimation of our operational risk capital
requirement.
The operational risk
framework employs a
distributed risk management infrastructure executed
by ERM groups aligned with the business units, which
the
the
are
operational risk framework at the business unit level.
implementation of
responsible
for
is
responsible
As with other
risks, senior business unit
the day-to-day
management
for
their respective
operational risk management of
is business unit management's
businesses.
the
responsibility
of
implementation and ongoing execution of
the
operational risk framework within their respective
oversight
provide
to
It
State Street Corporation | 99
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
organizations, as well as
communication with ERM.
Consistency and Transparency
coordination and
managing and measuring operational risk
coordinated and consistent manner.
in a
Risk Identification and Assessments
A number of corporate control functions are
directly responsible for implementing and assessing
various aspects of our operational risk framework,
the overarching goal of consistency and
with
transparency to meet the evolving needs of the
business:
•
•
•
•
•
of
the
and
CRO’s
evolution
The global head of Operational Risk, a
member
executive
management team, leads ERM’s corporate
ORM group. ORM is responsible for the
strategy,
consistent
risk
implementation of our operational
guidelines, framework and supporting tools
across our business. ORM reviews and
analyzes operational key risk information,
events, metrics and indicators at the business
unit and corporate level for purposes of risk
management, reporting and escalation to the
CRO, senior management and governance
committees;
ERM’s Centralized Modeling and Analytics
group develops and maintains operational
risk capital estimation models, and ORM's
Capital Analysis group calculates our
required capital for operational risk;
independently validates
ERM’s MVG
quantitative models used
operational
validation checks on the output of the model;
the
to measure
risk, and ORM performs
CIS establishes the framework, policies and
related programs to measure, monitor and
report on information security risks, including
the effectiveness of cybersecurity program
protections. CIS defines and manages the
enterprise-wide information security program.
CIS coordinates with Information Technology,
control
to
support
integrity and
availability of corporate information assets.
CIS identifies and employs a risk-based
methodology consistent with applicable
regulatory cybersecurity requirements and
monitors the compliance of our systems with
information security policies; and
functions and business units
the confidentiality,
application
Corporate Audit performs separate reviews of
the
risk
of
management practices and methodologies
utilized across our business.
operational
Our operational risk framework consists of five
components, each described below, which provide a
working structure
risk
programs into a continuous process focused on
integrates distinct
that
for
the
risk
techniques
The objective of
identification and
assessments is to understand business unit strategy,
risk profile and potential exposures. It is achieved
through a series of risk assessments across our
business using
identification,
assessment and measurement of risk across a
spectrum of potential
frequency and severity
combinations, including business-specific programs
to identify, assess and measure risk, such as new
business and product review and approval, new client
screening, and, as deemed appropriate, targeted risk
assessment
assessments. Two
programs, which occur annually, augmented by other
business-specific programs, are the core of this
component:
primary
risk
•
•
The risk and control assessment program
seeks to understand the risks associated with
day-to-day activities, and the effectiveness of
to manage potential
controls
intended
these activities.
from
exposures arising
These risks are typically frequent in nature
but generally not severe
terms of
exposure; and
in
is specifically designed
Identification process
The Material Risk
utilizes a bottom-up approach to identify our
most significant risk exposures across all on-
and off-balance sheet risk-taking activities.
to
The program
consider risks that could have a material
impact
likelihood or
frequency. This can include risks that may
have an impact on longer-term business
objectives, such as significant change
management activities or long-term strategic
initiatives.
irrespective of
their
Capital Analysis
The primary measurement tool used is an
internally developed loss distribution approach (LDA)
model. We use the LDA model to quantify required
operational risk capital, from which we calculate RWA
related to operational risk. Such required capital and
RWA
totaled $3.64 billion and $45.60 billion,
respectively, as of December 31, 2021, compared to
$3.53 billion and $44.15 billion, respectively, as of
December 31, 2020; refer to the "Capital" section in
"Financial Condition,"
this Management's
Discussion and Analysis.
of
The LDA model incorporates the three required
operational risk elements described below:
•
Internal loss event data is collected from
across our business in conformity with our
operating loss policy that establishes the
State Street Corporation | 100
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
in
tool,
included
requirements
for collecting and reporting
individual loss events. We categorize the
data into seven Basel-defined event types
and further subdivide the data by business
unit, as deemed appropriate. Each of these
loss events are represented in a UOM which
is used to estimate a specific amount of
capital required for the types of loss events
that fall into each specific category. Some
UOMs are measured at the corporate level
because they are not “business specific,”
such as damage to physical assets, where
the cause of an event is not primarily driven
by the behavior of a single business unit.
losses of $500 or greater are
Internal
the
captured, analyzed and
modeling approach. Loss event data
is
collected using a corporate-wide data
collection
Incident Capture and
Management System (ICAMS), to support
processes related to analysis, management
reporting and the calculation of required
capital. Internal loss event data provides our
frequency and severity information to our
capital calculation process for historical loss
events experienced by us. Internal loss event
data may be incorporated into our LDA model
in a future quarter following the realization of
the losses, with the timing and categorization
dependent on
for model
updates and, if applicable, model revalidation
and regulatory review and related supervisory
processes. An individual loss event can have
a significant effect on the output of our LDA
model and our operational risk RWA under
the advanced approaches depending on the
severity of the loss event, its categorization
among the seven Basel-defined UOMs and
the stability of the distributional approach for
a particular UOM;
the processes
•
•
External loss event data provides information
with respect to loss event severity from other
financial institutions to inform our capital
in similar
estimation process of events
business
banking
other
at
units
organizations. This information supplements
the data pool available for use in our LDA
model. Assessments of the sufficiency of
internal data and the relevance of external
data are completed before pooling the two
data sources for use in our LDA model; and
Business environment and internal control
factors are gathered from internal loss event
data and business-relevant metrics, such as
risk assessment program results, along with
industry loss event data and case studies
where appropriate. Business environment
factors are
those
and
internal control
characteristics of a bank’s
internal and
external operating environment that bear an
exposure to operational risk. The use of this
information
our
calculation of required capital by providing
to workshop
additional
participants when reviewing specific UOM
risks.
relevant data
influences
indirectly
Monitoring, Reporting and Analytics
It
risk exposure.
The objective of risk monitoring is to proactively
monitor the changing business environment and
corresponding operational
is
achieved
through a series of quantitative and
qualitative monitoring tools that are designed to allow
us
the business
environment, internal control factors, risk metrics, risk
assessments, exposures and operating effectiveness,
as well as details of loss events and progress on risk
initiatives
to mitigate potential risk
exposures.
to understand changes
implemented
in
thereby enabling management
Operational risk reporting is intended to provide
to
transparency,
manage risk, provide oversight and escalate issues in
a timely manner. It is designed to allow the business
units, executive management, and the Board's control
functions and committees to gain insight into activities
that may result in risks and potential exposures.
Reports are intended to identify business activities
that are experiencing processing issues, whether or
not they result in actual loss events. Reporting
includes results of monitoring activities, internal and
external examinations, regulatory reviews and control
assessments. These elements combine in a manner
designed to provide a view of potential and emerging
risks
its
facing us and
progress on managing risks.
that details
information
Effectiveness and Testing
are
that
internal
controls
The objective of effectiveness and testing is to
verify
designed
appropriately, are consistent with corporate and
regulatory standards, and are operating effectively. It
is achieved through a series of assessments by both
internal and external parties, independent registered
public accounting firms, business self-assessments
and other control
function reviews, such as a
Sarbanes-Oxley Act of 2002 (SOX) testing program.
Consistent with our standard model validation
process, the operational risk LDA model is subject to
a detailed review, overseen by the MRC. In addition,
the model is subject to a rigorous internal governance
process. All changes
input
to
parameters, and the deployment of model updates,
are reviewed and approved by the Operational Risk
Committee, which has oversight responsibility for the
model, with technical input from the MRC.
the model or
State Street Corporation | 101
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Documentation and Guidelines
Documentation and guidelines allow
for
the various
consistency and
processes that support the operational risk framework
across our business.
repeatability of
Operational
risk guidelines document our
in a
the key elements
practices and describe
business unit's operational
risk management
program. The purpose of the guidelines is to set forth
and define key operational risk terms, provide further
detail on our operational risk programs, and detail the
business units' responsibilities to identify, assess,
measure, monitor and report operational risk. The
guideline supports our operational risk policy.
to
Data standards have been established
maintain consistent data repositories and systems
that are controlled, accurate and available on a timely
basis to support operational risk management.
Information Technology Risk Management
Overview and Principles
We define technology risk as the risk associated
with the use, ownership, operation, involvement,
influence and adoption of information technology.
Technology risk includes risks potentially triggered by
regulatory
technology
privacy
obligations,
incidents, business disruption, technology internal
control and process gaps, technology operational
events and adoption of new business technologies.
non-compliance
information
security
with
and
The principal
risks within our
technology
technology risk policy and risk appetite framework
include:
•
•
•
•
•
•
Third party and vendor management risk;
Business disruption and technology resiliency
risk;
Technology change management risk;
Cyber and information security risk;
Technology asset and configuration risk; and
Technology obsolescence risk.
Governance
Our Board is responsible for the approval and
oversight of our overall technology risk framework
and program. It does so through its TOPS, which
reviews and approves our technology risk policy and
appetite framework annually.
Our
technology risk policy establishes our
approach to our management of technology risk
across our business. The policy
the
responsibilities of individuals and committees charged
with oversight of the management of technology risk
and articulates a broad mandate
that supports
implementation of the technology risk framework.
identifies
functions
Risk control
in
for adopting and executing
the business are
responsible
the
information technology risk framework and reporting
requirements. They do this, in part, by developing and
maintaining an inventory of critical applications and
supporting
identifying,
infrastructure, as well as
assessing and measuring technology risk utilizing the
technology risk framework. They are also responsible
for monitoring and evaluating risk on a continual basis
using key risk indicators, risk reporting and adopting
appropriate risk responses to risk issues.
is
The Chief Technology Risk Officer, a member of
the CRO’s executive management team, leads the
Enterprise Technology Risk Management (ETRM)
function
function. ETRM
responsible for the technology risk strategy and
appetite, and technology risk framework development
and execution. ETRM also performs overall
technology risk monitoring and reporting to the Board,
and provides a separate view of the technology risk
posture to executive leadership.
the separate
risk
•
•
•
•
•
•
•
•
We manage technology risks by:
Coordinating various risk assessment and
risk management activities, including ERM
operational risk programs;
Establishing, through TORC and TOPS of the
Board, the enterprise level technology risk
and cyber risk appetite and limits;
Producing enterprise
level risk reporting,
aggregation, dashboards, profiles and risk
appetite statements;
Validating appropriateness of reporting of
risk
information
acceptance
risk
committees and the Board;
technology
risks and
to senior management
Promoting a strong technology risk culture
through communication;
Serving as an escalation and challenge point
guidance,
risk
for
expectations and clarifications;
technology
policy
Assessing effectiveness of key enterprise
information
internal
control remediation programs; and
technology
risk and
Providing
risk oversight, challenge and
monitoring for the Global Continuity and Third
Party Vendor Management Program,
the collection of risk appetite,
including
metrics and key risk indicators, and reviewing
issue management processes and consistent
program adoption.
State Street Corporation | 102
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cybersecurity Risk Management
Cybersecurity risk is managed as part of our
overall information technology risk framework as
outlined above under the direction of our Chief
Information Security Officer.
We recognize the significance of cyber-attacks
and have taken steps to mitigate the risks associated
with them. We have made significant investments in
building a mature cybersecurity program to leverage
people, technology and processes to protect our
systems and the data in our care. We have also
implemented a program to help us better measure
and manage the cybersecurity risk we face when we
engage with third parties for services.
All employees are required to adhere to our
cybersecurity policy and standards. Our centralized
information security group provides education and
training. This training includes a required annual
online training class for all employees, multiple
simulated phishing attacks and regular information
security awareness materials.
We employ Information Security Officers to help
the business better understand and manage their
information security risks, as well as to work with the
centralized
to drive
awareness and compliance throughout the business.
Information Security
team
We use independent third parties to perform
ethical hacks of key systems to help us better
understand the effectiveness of our controls and to
better implement more effective controls, and we
engage with third parties to conduct reviews of our
overall program
to help us better align our
cybersecurity program with what is required of a large
financial services organization.
We have an incident response program in place
that
to enable a well-coordinated
is designed
response to mitigate the impact of cyber-attacks,
recover from the attack and to drive the appropriate
level of communication to internal and external
stakeholders.
the
The TORC assesses and manages
effectiveness of our cybersecurity program, which is
overseen by the TOPS of our Board. The TOPS
receives regular cybersecurity updates throughout the
year and is responsible for reviewing and approving
the program on an annual basis.
Market Risk Management
Market risk is defined by U.S. banking regulators
as the risk of loss that could result from broad market
movements, such as changes in the general level of
interest rates, credit spreads, foreign exchange rates
or commodity prices. We are exposed to market risk
in both our trading and certain of our non-trading, or
asset-and-liability management, activities.
Information about the market risk associated
with our trading activities is provided below under
“Trading Activities.” Information about the market risk
associated with our non-trading activities, which
consists primarily of interest rate risk, is provided
below
“Asset-and-Liability Management
Activities.”
under
Trading Activities
In the conduct of our trading activities, we
assume market risk, the level of which is a function of
our overall risk appetite, business objectives and
liquidity needs, our clients' requirements and market
volatility and our execution against those factors.
We engage in trading activities primarily to
support our clients' needs and to contribute to our
overall corporate earnings and liquidity. In connection
with certain of these trading activities, we enter into a
variety of derivative financial instruments to support
our clients' needs and to manage our interest rate
and currency risk. These activities are generally
intended
trading
services revenue and to manage potential earnings
volatility. In addition, we provide services related to
derivatives in our role as both a manager and a
servicer of financial assets.
foreign exchange
to generate
Our clients use derivatives to manage the
financial risks associated with their investment goals
and business activities. With the growth of cross-
border investing, our clients often enter into foreign
exchange forward contracts to convert currency for
international investments and to manage the currency
risk in their international investment portfolios. As an
active participant in the foreign exchange markets, we
provide
forward and option
contracts in support of these client needs, and also
act as a dealer in the currency markets.
foreign exchange
As part of our trading activities, we assume
positions in the foreign exchange and interest rate
markets by buying and selling cash instruments and
entering into derivative instruments, including foreign
exchange forward contracts, foreign exchange and
interest rate options and interest rate swaps, interest
rate forward contracts and interest rate futures. As of
December 31, 2021, the notional amount of these
derivative contracts was $2.60 trillion, of which $2.58
trillion was composed of foreign exchange forward,
swap and spot contracts. We seek to match positions
closely with
the objective of mitigating related
currency and interest rate risk. All foreign exchange
contracts are valued daily at current market rates.
Governance
Our assumption of market risk in our trading
activities is an integral part of our corporate risk
appetite. Our Board reviews and oversees our
management of market risk, including the approval of
key market risk policies and the receipt and review of
State Street Corporation | 103
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
regular market risk reporting, as well as periodic
updates on selected market risk topics.
The previously described CMRC (refer to "Risk
Committees") oversees all market
risk-taking
activities across our business associated with trading.
The CMRC, which reports to MRAC, is composed of
members of ERM, our global markets business and
our Global Treasury group, as well as our senior
executives who manage our trading businesses and
other members of management who possess
specialized knowledge and expertise. The CMRC
meets regularly to monitor the management of our
trading market risk activities.
Our business units identify, actively manage and
are responsible for the market risks inherent in their
businesses. A dedicated market risk management
group within ERM, and other groups within ERM,
work with those business units to assist them in the
identification, assessment, monitoring, management
and control of market risk, and assist business unit
managers with their market risk management and
measurement activities. ERM provides an additional
line of oversight, support and coordination designed
to promote the consistent identification, measurement
and management of market risk across business
units, separate from those business units' discrete
activities.
The ERM market risk management group is
responsible for the management of corporate-wide
market risk, the monitoring of key market risks and
the development and maintenance of market risk
management policies, guidelines and standards
aligned with our corporate risk appetite. This group
also establishes and approves market risk tolerance
limits and trading authorities based on, but not limited
to, measures of notional amounts, sensitivity, VaR
and stress. Such limits and authorities are specified in
our trading and market risk guidelines which govern
our management of trading market risk.
We are subject to regular monitoring, reviews
and supervisory exams of our market risk function by
the Federal Reserve. In addition, we are regulated by,
the Financial
among others,
Industry
the SEC,
the U.S. Commodities
Regulatory Authority and
Futures Trading Commission.
Risk Appetite
Our corporate market risk appetite is specified in
the governance,
that outline
policy statements
responsibilities and requirements surrounding the
identification, measurement, analysis, management
and communication of market risk arising from our
trading activities. These policy statements also set
forth the market risk control framework to monitor,
support, manage and control this portion of our risk
appetite. All groups involved in the management and
control of market risk associated with trading activities
are required to comply with the qualitative and
quantitative elements of these policy statements. Our
trading market risk control framework is composed of
the following:
•
•
•
•
•
•
•
•
•
•
•
A trading market risk management process
led by ERM, separate from the business
units' discrete activities;
Defined responsibilities and authorities for the
primary groups involved in trading market risk
management;
trading market
A
risk measurement
methodology that captures correlation effects
and allows aggregation of market risk across
risk types, markets and business lines;
Daily monitoring, analysis and reporting of
market risk exposures associated with trading
activities against market risk limits;
limit structure and escalation
A defined
process in the event of a market risk limit
excess;
Use of VaR models to measure the one-day
market risk exposure of trading positions;
Use of VaR as a ten-day-based regulatory
capital measure of the market risk exposure
of trading positions;
Use of non-VaR-based
controls;
limits and other
Use of stressed-VaR models, stress-testing
analysis and scenario analysis to support the
risk measurement and
trading market
management process by assessing how
portfolios and global business lines perform
under extreme market conditions;
Use of back-testing as a diagnostic tool to
assess the accuracy of VaR models and
other risk management techniques; and
A new product approval process that requires
market risk teams to assess trading-related
market risks and apply risk tolerance limits to
proposed new products and business
activities.
We use our CAP to assess our overall capital
and liquidity in relation to our risk profile and provide
a comprehensive strategy for maintaining appropriate
capital and liquidity levels. With respect to market risk
risk
associated with
management and our calculations of regulatory
capital are based primarily on our internal VaR
models and stress testing analysis. As discussed in
detail under “Value-at-Risk and Stressed VaR” below,
VaR is measured daily by ERM.
activities,
trading
our
The CMRC oversees our market risk exposure
in relation to limits established within our risk appetite
framework. These limits define threshold levels for
State Street Corporation | 104
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
VaR- and stressed VaR-based measures and are
applicable to all trading positions subject to regulatory
capital requirements. These limits are designed to
prevent any undue concentration of market risk
exposure, in light of the primarily non-proprietary
nature of our trading activities. The risk appetite
framework and associated limits are reviewed and
approved by the Board's RC.
Covered Positions
Our trading positions are subject to regulatory
market risk capital requirements if they meet the
regulatory definition of a “covered position.” A covered
position
is generally defined by U.S. banking
regulators as an on- or off-balance sheet position
associated with the organization's trading activities
that is free of any restrictions on its tradability, but
does not include intangible assets, certain credit
derivatives recognized as guarantees and certain
equity positions not publicly traded. All FX and
commodity positions are
covered
positions, regardless of the accounting treatment they
receive. The identification of covered positions for
inclusion in our market risk capital framework is
governed by our trading and market risk guidelines,
which outlines the standards we use to determine
whether a trading position is a covered position.
considered
Our covered positions consist primarily of the
trading portfolios held by our global markets
business. They also arise from certain positions held
by our Global Treasury group. These trading positions
include products such as foreign exchange spot,
foreign exchange forwards, non-deliverable forwards,
foreign exchange options, foreign exchange funding
swaps, currency futures, financial futures and interest
rate futures. New activities are analyzed to determine
if the positions arising from such new activities meet
the definition of a covered position and conform to our
trading and market risk guidelines. This documented
analysis, including any decisions with respect to
market risk treatments, must receive approval from
the CMRC.
factors
to measure
We use spot rates, forward points, yield curves
and discount
third-party
imported
from
the value of our covered
sources
positions, and we use such values to mark our
covered positions to market on a daily basis. These
values are subject to separate validation by us in
order to evaluate reasonableness and consistency
with market experience. The mark-to-market gain or
loss on spot transactions is calculated by applying the
spot rate to the foreign currency principal and
comparing the resultant base currency amount to the
original transaction principal. The mark-to-market
gain or loss on a forward foreign exchange contract
or forward cash flow contract is determined as the
difference between the life-to-date (historical) value of
the cash flow and the value of the cash flow at the
inception of the transaction. The mark-to-market gain
or loss on interest rate swaps is determined by
discounting the future cash flows from each leg of the
swap transaction.
Value-at-Risk and Stressed VaR
We use a variety of risk measurement tools and
methodologies, including VaR, which is an estimate of
potential loss for a given period within a stated
statistical confidence
risk
trading-
measurement methodology
related VaR daily. We have adopted standards for
measuring trading-related VaR, and we maintain
regulatory capital for market risk associated with our
in conformity with currently
trading activities
applicable bank regulatory market risk requirements.
interval. We use a
to measure
We utilize an internal VaR model to calculate our
regulatory market risk capital requirements. We use a
historical simulation model to calculate daily VaR- and
stressed VaR-based measures
for our covered
positions in conformity with regulatory requirements.
Our VaR model seeks to capture identified material
risk factors associated with our covered positions,
including risks arising from market movements such
as changes in foreign exchange rates, interest rates
and option-implied volatilities.
We have adopted standards and guidelines to
value our covered positions which govern our VaR-
and stressed VaR-based measures. Our regulatory
VaR-based measure is calculated based on historical
volatilities of market risk factors during a two-year
observation period calibrated to a one-tail, 99%
confidence interval and a ten-business-day holding
period. We also use the same platform to calculate a
one-tail, 99% confidence interval, one-business-day
VaR for internal risk management purposes. A 99%
one-tail confidence interval implies that daily trading
losses are not expected to exceed the estimated VaR
more than 1% of the time, or less than three business
days out of a year.
Our market risk models, including our VaR
model, are subject to change in connection with the
governance, validation and back-testing processes
described below. These models can change as a
result of changes in our business activities, our
historical experiences, market forces and events,
regulations and regulatory interpretations and other
factors.
to
continuing regulatory review and approval. Changes
in our models may result
in our
measurements of our market
risk exposures,
including
including VaR, and related measures,
regulatory capital. These changes could result in
material changes in those risk measurements and
related measures as calculated and compared from
period to period.
the models are subject
in changes
In addition,
State Street Corporation | 105
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Value-at-Risk Measures
VaR measures are based on the most recent
for
two years of historical price movements
instruments and related risk factors to which we have
exposure. The instruments in question are limited to
foreign exchange spot, forward and options contracts
and interest rate contracts, including futures and
interest rate swaps. Historically, these instruments
have exhibited a higher degree of liquidity relative to
other available capital markets instruments. As a
result, the VaR measures shown reflect our ability to
rapidly adjust exposures in highly dynamic markets.
For this reason, risk inventory, in the form of net open
positions, across all currencies is typically limited. In
addition, long and short positions in major, as well as
minor, currencies provide risk offsets that limit our
potential downside exposure.
interest rates and
Our VaR methodology uses a historical
simulation approach based on market-observed
changes in foreign exchange rates, U.S. and non-
U.S.
implied volatilities, and
incorporates
the resulting diversification benefits
provided from the mix of our trading positions. Our
VaR model incorporates approximately 5,000 risk
factors and includes correlations among currency,
interest rates and other market rates.
All VaR measures are subject to limitations and
must be interpreted accordingly. Some, but not all, of
the limitations of our VaR methodology include the
following:
•
•
•
Compared to a shorter observation period, a
two-year observation period is slower to
reflect increases in market volatility (although
temporary increases in market volatility will
affect the calculation of VaR for a longer
period); consequently, in periods of sudden
increases in volatility or increasing volatility,
in each case relative to the prior two-year
period, the calculation of VaR may understate
current risk;
Compared to a longer observation period, a
two-year observation period may not reflect
as many past periods of volatility in the
markets, because such past volatility is no
longer
period;
consequently, historical market scenarios of
high volatility, even if similar to current or
likely future market circumstances, may fall
outside
two-year observation period,
resulting in a potential understatement of
current risk;
observation
the
the
in
The VaR-based measure is calibrated to a
specified level of confidence and does not
indicate the potential magnitude of losses
beyond this confidence level;
•
•
•
In certain cases, VaR-based measures
approximate the impact of changes in risk
the values of positions and
factors on
portfolios; this may happen because the
number of inputs included in the VaR model
is necessarily limited; for example, yield
curve risk factors do not exist for all future
dates;
The use of historical market information may
not be predictive of future events, particularly
this
those
“backward-looking” limitation can cause VaR
to understate or overstate risk;
that are extreme
in nature;
The effect of extreme and rare market
movements is difficult to estimate; this may
result from non-linear risk sensitivities as well
as the potential for actual volatility and
correlation levels to differ from assumptions
implicit in the VaR calculations; and
•
Intra-day risk is not captured.
to
identify
We calculate a stressed VaR-based measure
using the same model we use to calculate VaR, but
with model inputs calibrated to historical data from a
range of continuous twelve-month periods that reflect
significant financial stress. The stressed VaR model is
designed
the second-worst outcome
occurring in the worst continuous one-year rolling
period since July 2007. This stressed VaR meets the
regulatory requirement as the rolling ten-day period
with an outcome that is worse than 99% of other
outcomes during that twelve-month period of financial
stress. For each portfolio,
is
determined algorithmically by seeking the one-year
time horizon that produces the largest ten-business-
day VaR from within the available historical data. This
historical data set includes the financial crisis of 2008,
the highly volatile period surrounding the Eurozone
sovereign debt crisis and the Standard & Poor's
downgrade of U.S. Treasury debt in August 2011. As
the historical data set used to determine the stress
period expands over time, future market stress events
will be incorporated.
the stress period
Stress Testing
financial
We have a corporate-wide stress
testing
program in place that incorporates an array of
techniques to measure the potential loss we could
suffer in a hypothetical scenario of adverse economic
and
also monitor
conditions. We
concentrations of risk such as concentration by
branch, risk component, and currency pairs. We
conduct stress testing on a daily basis based on
selected historical stress events that are relevant to
our positions in order to estimate the potential impact
to our current portfolio should similar market
conditions recur, and we also perform stress testing
as part of the Federal Reserve's CCAR process.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Stress testing is conducted, analyzed and reported at
the corporate, trading desk, division and risk-factor
level (for example, exchange risk, interest rate risk
and volatility risk).
Stress testing results and limits are actively
monitored on a daily basis by ERM and reported to
the CMRC. Limit breaches are addressed by ERM
risk managers in conjunction with the business units,
escalated as appropriate, and reviewed by the CMRC
if material. In addition, we have established several
action triggers that prompt immediate review by
management and
implementation of a
remediation plan.
the
involve spot
We perform scenario analysis daily based on
selected historical stress events that are relevant to
our positions in order to estimate the potential impact
to our current portfolio should similar market
conditions recur. Relevant scenarios are chosen from
an inventory of historical financial stresses and
applied to our current portfolio. These historical event
scenarios
foreign exchange, credit,
equity, unforeseen geo-political events and natural
disasters, and government and central bank
intervention scenarios. Examples of
the specific
historical scenarios we incorporate in our stress
testing program may include the Asian financial crisis
of 1997, the September 11, 2001 terrorist attacks in
the U.S. and the 2008 financial crisis. We continue to
update our inventory of historical stress scenarios as
new stress conditions emerge
financial
markets.
the
in
As each of the historical stress events is
associated with a different time horizon, we normalize
results by scaling down the longer horizon events to a
ten-day horizon and keeping the shorter horizon
events (i.e., events that are shorter than ten days) at
their original terms. We also conduct sensitivity
analysis daily to calculate the impact of a large
predefined shock in a specific risk factor or a group of
risk factors on our current portfolio. These predefined
shocks include parallel and non-parallel yield curve
shifts and foreign exchange spot and volatility surface
shifts. In a parallel shift scenario, we apply a constant
factor shift across all yield curve tenors. In a non-
parallel shift scenario, we apply different shock levels
to different tenors of a yield curve, rather than shifting
the entire curve by a constant amount. Non-parallel
shifts include steepening, flattening and butterflies.
Validation and Back-Testing
We perform frequent back-testing to assess the
accuracy of our VaR-based model in estimating loss
at the stated confidence level. This back-testing
involves the comparison of estimated VaR model
outputs
(P&L)
to daily, actual profit-and-loss
outcomes observed from daily market movements.
We back-test our VaR model using “clean” P&L,
which excludes non-trading revenue such as fees,
commissions and NII, as well as estimated revenue
from intra-day trading.
Our VaR definition of trading losses excludes
items that are not specific to the price movement of
the trading assets and liabilities themselves, such as
fees, commissions, changes to reserves and gains or
losses from intra-day activity.
We experienced one back-testing exception in
2021 and three back-testing exceptions in 2020. At a
99% confidence interval, the statistical expectation for
a VaR model is to witness one exception every
hundred trading days (or two to three exceptions per
year). The 2021 back-testing exception has been
attributed to dislocation in FX markets caused by
greater demand for funding over year-end periods.
The 2020 back-testing exceptions were all noted
during the March 2020 market turmoil where some of
the largest risk factor shifts since the 2007/2008
financial crisis were observed.
Our model validation process also evaluates the
integrity of our VaR models through the use of regular
outcome analysis. This outcome analysis includes
the VaR model's
back-testing, which compares
predictions to actual outcomes using out-of-sample
information. Consistent with regulatory guidance, the
back-testing compared “clean” P&L, defined above,
with the one-day VaR produced by the model. The
back-testing was performed for a time period not
for model development. The number of
used
occurrences where
trading-book P&L
“clean”
exceeded the one-day VaR was within our expected
VaR tolerance level.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Market Risk Reporting
Our ERM market risk management group is responsible for market risk monitoring and reporting. We use a
variety of systems and controlled market feeds from third-party services to compile data for several daily, weekly
and monthly management reports.
The following tables present VaR and stressed VaR associated with our trading activities for covered positions
held during the years ended December 31, 2021 and 2020, respectively, as measured by our VaR methodology.
Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for
each trading activity. This effect arises because the risks present in our trading activities are not perfectly correlated.
TABLE 34: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Year Ended December 31, 2021
As of
December
31, 2021
Year Ended December 31, 2020
As of
December
31, 2020
(In thousands)
Average
Maximum
Minimum
VaR
Average
Maximum
Minimum
VaR
Global Markets
$
15,214 $
30,485 $
5,252 $
16,998 $
12,430 $
33,991 $
5,220 $
Global Treasury
Diversification
3,189
(2,115)
9,762
(7,958)
220
1,024
3,556
(4,519)
2,899
(2,253)
8,874
(9,062)
112
(121)
Total VaR
$
16,288 $
32,289 $
6,496 $
16,035 $
13,076 $
33,803 $
5,211 $
9,321
4,015
(4,068)
9,268
TABLE 35: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Year Ended December 31, 2021
As of
December
31, 2021
Year Ended December 31, 2020
As of
December
31, 2020
(In thousands)
Average
Maximum
Minimum
VaR
Average
Maximum
Minimum
VaR
Global Markets
$
41,698 $
101,535 $
13,037 $
65,840 $
35,031 $
84,755 $
15,399 $
Global Treasury
Diversification
9,601
(5,607)
29,651
(20,018)
814
2,918
12,419
(17,505)
7,895
(6,330)
23,533
(23,570)
587
1,620
35,999
8,555
(1,106)
Total Stressed VaR $
45,692 $
111,168 $
16,769 $
60,754 $
36,596 $
84,718 $
17,606 $
43,448
The average and period-end stressed VaR-based measures were approximately $46 million and $61 million,
respectively, for the year ended December 31, 2021, compared to $37 million and $43 million, respectively, for the
year ended December 31, 2020. The increase in the average and period-end VaR-based and stressed VaR-based
measures was primarily due to higher residual interest rate positions throughout the year. With regards to our VaR-
based measure, the model uses a two-year historical observation period, and as such, the measure is still driven by
the heightened market volatility experienced during the early stages of the COVID-19 pandemic, primarily with
respect to FX rates and interest rates.
The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of
market volatility and our appetite for taking market risk in our trading activities. Overall levels of volatility have been
low both on an absolute basis and relative to the historical information observed at the beginning of the period used
for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on
historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day
over the past one-year period.
We have in the past and may in the future modify and adjust our models and methodologies used to calculate
VaR and stressed VaR, subject to regulatory review and approval, and any future modifications and adjustments
may result in changes in our VaR-based and stressed VaR-based measures.
The following tables present the VaR and stressed-VaR associated with our trading activities attributable to
foreign exchange risk, interest rate risk and volatility risk as of December 31, 2021 and 2020, respectively. The
totals of the VaR-based and stressed VaR-based measures for the three attributes in total exceeded the related total
VaR and total stressed VaR presented in the foregoing tables as of each period-end, primarily due to the benefits of
diversification across risk types. Diversification effect in the tables below represents the difference between total
VaR and the sum of the VaRs for each trading activity. This effect arises because the risks present in our trading
activities are not perfectly correlated.
TABLE 36: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
(In thousands)
By component:
Global Markets
Global Treasury
Diversification
Total VaR
As of December 31, 2021
As of December 31, 2020
Foreign Exchange
Risk
Interest Rate
Risk
Volatility
Risk
Foreign Exchange
Risk
Interest Rate
Risk
Volatility
Risk
$
$
6,945 $
16,424 $
108 $
2,977 $
8,880 $
531
(877)
6,599 $
3,688
(3,682)
16,430 $
—
—
108 $
33
(42)
2,968 $
4,257
(2,246)
10,891 $
179
—
—
179
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 37: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
(In thousands)
By component:
Global Markets
Global Treasury
Diversification
Total Stressed VaR
As of December 31, 2021
As of December 31, 2020
Foreign Exchange
Risk
Interest Rate
Risk
Volatility
Risk
Foreign Exchange
Risk
Interest Rate
Risk
Volatility
Risk
$
$
9,445 $
63,368 $
157 $
5,102 $
39,615 $
667
(1,551)
13,218
(17,500)
—
—
83
(51)
8,465
(8,102)
8,561 $
59,086 $
157 $
5,134 $
39,978 $
265
—
—
265
(1) For purposes of risk attribution by component, foreign exchange refers only to the risk from market movements in period-end rates. Forwards, futures, options and
swaps with maturities greater than period-end have embedded interest rate risk that is captured by the measures used for interest rate risk. Accordingly, the interest rate
risk embedded in these foreign exchange instruments is included in the interest rate risk component.
Asset and Liability Management Activities
The primary objective of asset and liability management is to provide sustainable NII under varying economic
conditions, while protecting the economic value of the assets and liabilities carried on our consolidated statement of
condition from the adverse effects of changes in interest rates. While many market factors affect the level of NII and
the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in
interest rates. Most of our NII is earned from the investment of client deposits generated by our businesses. We
invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities,
including the currency composition of our significant non-U.S. dollar denominated client liabilities.
We quantify NII sensitivity using an earnings simulation model that includes our expectations for new business
growth, changes in balance sheet mix and investment portfolio positioning. This measure compares our baseline
view of NII over a twelve-month horizon, based on our internal forecast of interest rates, to a wide range of rate
shocks. The baseline view of NII is updated on a regular basis. Relative to December 31, 2020, the December 31,
2021 baseline forecast reflects an increased balance sheet size. Table 38, Key Interest Rates for Baseline
Forecasts, presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2021 and
December 31, 2020. Our December 31, 2021 baseline forecast includes the expectation of three rate hikes by the
Federal Reserve over the next 12 months.
TABLE 38: KEY INTEREST RATES FOR BASELINE FORECASTS
December 31, 2021
December 31, 2020
Fed Funds Target
10-Year Treasury
Fed Funds Target
10-Year Treasury
Spot rates
12-month forward rates
0.25 %
1.00
1.77 %
1.95
0.25 %
0.25
0.93 %
1.12
In Table 39: Net Interest Income Sensitivity, we report the expected change in NII over the next twelve months
from instantaneous shocks to various tenors on the yield curve, including the impacts from U.S. and non-U.S. rates.
Each scenario assumes no management action is taken to mitigate the adverse effects of interest rate changes on
our financial performance. While investment securities balances and composition can fluctuate with the level of
rates as prepayment assumptions change, for purposes of this analysis our deposit balances are assumed to
remain consistent with the baseline forecast. In lower rate scenarios, the full impact of the shock is realized for all
currencies even if the result is negative interest rates.
State Street Corporation | 109
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 39: NET INTEREST INCOME SENSITIVITY
(In millions)
Rate change:
Parallel shifts:
+100 bps shock
–100 bps shock
Steeper yield curve:
'+100 bps shift in long-end rates(1)
'-100 bps shift in short-end rates(1)
Flatter yield curve:
'+100 bps shift in short-end rates(1)
'-100 bps shift in long-end rates(1)
December 31, 2021(2)
December 31, 2020
U.S. Dollar
All Other
Currencies
Total
U.S. Dollar
All Other
Currencies
Total
Benefit (Exposure)
Benefit (Exposure)
$
447 $
384
306 $
(39)
753 $
345
410 $
591
172 $
196
114
519
337
(132)
16
(22)
290
(16)
130
497
627
(148)
135
743
282
(141)
3
199
168
(3)
582
787
138
942
450
(144)
(1) The short end is 0-3 months. The long end is 5 years and above. Interim term points are interpolated.
(2) Does not reflect any impact of our planned acquisition of the BBH Investor Services business.
As of December 31, 2021, NII is expected to benefit from an increase in interest rates. Compared to December
31, 2020, our NII is more sensitive to parallel rate increases primarily driven by higher levels of deposits partially
offset by higher expected client deposit betas as rates rise. Our projection of an NII benefit to an upward rate shock
of +100bps assumes deposit betas are similar to the 2016-2017 rising rate cycle. Our projection also assumes that
baseline deposit levels remain relatively consistent with fourth quarter 2021 averages. We expect that our NII
benefit in the +100bps scenarios would be lower if either deposit levels decline relative to our baseline or client
deposit betas are higher than the prior rising rate cycle.
Our NII is expected to benefit from a -100 bps rate shock due to assets with contractual floors, primarily in our
lending portfolio, but compared to December 31, 2020, the benefit has decreased primarily due to the expectation
that some central banks will raise rates over the next 12 months. This expectation widens the margin on client
deposits in our baseline, but compresses them in lower rate scenarios.
EVE sensitivity is a discounted cash flow model designed to estimate the fair value of assets and liabilities
under a series of interest rate shocks over a long-term horizon. In the following table, we report our EVE sensitivity
to 200 bps instantaneous rate shocks, relative to spot interest rates. Management compares the change in EVE
sensitivity against our aggregate Tier 1 and Tier 2 risk-based capital, calculated in conformity with current applicable
regulatory requirements. EVE sensitivity is dependent on the timing of interest and principal cash flows. Also, the
measure only evaluates the spot balance sheet and does not include the impact of new business assumptions.
TABLE 40: ECONOMIC VALUE OF EQUITY SENSITIVITY
(In millions)
Rate change:
+200 bps shock
–200 bps shock
As of December 31,
2021
2020
$
Benefit (Exposure)
(1,380) $
3,829
(1,603)
5,538
As of December 31, 2021, EVE sensitivity remains exposed to upward shifts in interest rates. Compared to
December 31, 2020, our sensitivity in the up 200 bps shock scenario decreased due to higher client deposits and an
increase in expected prepayment speeds on agency RMBS, partially offset by growth in our securities portfolio and
interest rate hedging activity.
Both NII sensitivity and EVE sensitivity are routinely monitored as market conditions change. For additional
information about our Asset and Liability Management Activities, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations, "Risk Management."
State Street Corporation | 110
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Model Risk Management
The use of models is widespread throughout the
financial services industry, with large and complex
organizations relying on sophisticated models to
support numerous aspects of their financial decision
making. The models contemporaneously represent
financial
both a
management and a source of risk. In large banking
organizations
influence
business decisions, and model failure could have a
harmful effect on our financial performance. As a
result, the MRM Framework seeks to mitigate our
model risk.
significant advancement
like us, model
results
in
Our MRM program has
three principal
components:
•
•
•
risk governance program
A model
that
defines roles and responsibilities, including
the authority to restrict model usage, provides
policies and guidance, monitors compliance
and reports regularly to the Board on the
overall degree of model risk across the
corporation;
and
sound
design
A model development process that focuses
on
computational
accuracy, and includes activities designed to
assess data quality, to test for robustness,
stability and sensitivity to assumptions, and to
conduct ongoing monitoring of model
performance; and
to
An independent model validation function
that models are
designed
conceptually
computationally
accurate, are performing as expected, and
are in line with their intended use.
verify
sound,
The MRM Framework, highlighted above, also
provides insight and guidance into addressing key
model risks that arise.
Governance
Models used in the regulatory capital calculation
can only be deployed for use after undergoing a
model validation by ERM's MRM group. The model
validation results and/or a decision by the Model Risk
Committee must permit model usage or the model
may not be used.
corporate-wide model
ERM’s MRM group is responsible for defining
risk management
the
framework, maintaining policies that achieve the
framework’s objectives. All
capital
calculation models, including any artificial intelligence
and machine learning models, must comply with the
and
model
corresponding policies. The team is responsible for
overall model risk governance capabilities, with
particular emphasis in the areas of model validation,
model risk reporting, model performance monitoring,
risk management
framework
regulatory
tracking of new model development status and
committee-level review and challenge.
MRC, which is composed of senior managers
responsible for representing functional areas and
business units with key models across
the
organization,
to MRAC, and provides
guidance and oversight to the MRM function.
reports
Model Development and Ongoing Monitoring
Models are developed under
standards
governing data sourcing, methodology selection and
model integrity testing. Model development includes a
statement of purpose to align development with
intended use. It may also include a comparison of
alternative approaches to promote a sound modeling
approach.
Model developers conduct an assessment of
data quality and relevance. The development teams
conduct a variety of tests of the accuracy, robustness
and stability of each model.
Model owners submit models to the MVG for
validation on a regular basis, as per the existing
policy. The model owners also conduct ongoing
monitoring of each model.
Model Validation
MVG is part of MRM within ERM and performs
model validations and reviews. MVG is independent,
as contemplated by applicable bank regulatory
requirements, of both the developers and users of the
models. MVG validates models through an evaluation
process that assesses the appropriateness, accuracy,
and suitability of data
inputs, methodologies,
documentation, assumptions, and processing code.
Model validation also encompasses an assessment
of model performance, sensitivity, and robustness, as
well as a model’s potential limitations given its
particular assumptions or deficiencies. Based on the
results of its review, MVG issues a model use
decision and may require remedial actions and/or
compensating controls on model use. MVG also
maintains a model risk rating system, which assigns a
risk rating to each model based on an assessment of
a model's inherent and residual risks. These ratings
aid in the understanding and reporting of model risk
across the model portfolio, and enable the triaging of
needs for remediation.
Although model validation is the primary method
of subjecting models to independent review and
challenge,
in practice, a multi-step governance
process provides the opportunity for challenge by
multiple parties. First, MVG conducts a model
validation and issues a model use decision. MVG
communicates their result as one of the following
three outcomes:
“Approved with
“Approved”,
conditions”, or “Not Approved”. There are three ways
in which a model can be deemed “Not approved for
State Street Corporation | 111
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Use” given a validation: 1) the aggregation of the
model scoring within MRM’s Model Risk Rating
System (MRRS) model is poor enough to result in a
“high” rating, 2) the scoring of one or more MRRS
model element(s) is deemed “critical” resulting in an
automatic “high” rating irrespective of the other
elements as the “critical” element(s) undermines the
model, or 3) the remediation action is not properly
in a severe
taken by
compliance breach
the model
rating. Second, these decisions may be reviewed,
challenged, and confirmed by the MRC. Finally,
model use decisions, risk ratings, and overall levels of
model risk may be reported to and reviewed by
MRAC. MRM also reports regularly on model risk
issues to the Board.
the due date resulting
that undercuts
Strategic Risk Management
We define strategic risk as the current or
prospective impact on earnings or capital arising from
adverse business decisions, improper implementation
of strategic initiatives, or lack of responsiveness to
industry-wide changes. Strategic risks are influenced
by changes in the competitive environment; decline in
market performance or changes in our business
activities; and the potential secondary impacts of
reputational risks, not already captured as market,
interest rate, credit, operational, model or liquidity
risks. We
into our
assessment of our business plans and risk and
capital management processes. Active management
of strategic risk is an integral component of all
aspects of our business.
incorporate strategic
risk
the
Separating the effects of a potential material
adverse event into operational and strategic risk is
sometimes difficult. For instance, the direct financial
impact of an unfavorable event in the form of fines or
penalties would be classified as an operational risk
impact on our reputation and
loss, while
consequently
loss of clients and
corresponding decline in revenue would be classified
as a strategic risk loss. An additional example of
strategic risk is the integration of a major acquisition.
Failure to successfully integrate the operations of an
acquired business, and the resultant inability to retain
clients and
the associated revenue, would be
classified as a loss due to strategic risk.
the potential
Strategic risk is managed with a long-term focus.
Techniques for its assessment and management
include the development of business plans, which are
subject to robust review and challenge from senior
management and the Board of Directors, as well as a
formal review and approval process for all new
business and product proposals. The potential impact
of the various elements of strategic risk is difficult to
quantify with any degree of precision. We use a
combination of historical earnings volatility, scenario
analysis, stress-testing and management judgment to
help assess the potential effect on us attributable to
strategic risk. Management and control of strategic
risks are generally the responsibility of the business
units, with oversight from the control functions, as
part of their overall strategic planning and internal risk
management processes.
the
On March 5, 2021,
Intercontinental
Exchange Benchmark Administration announced, in
conjunction with
the United Kingdom Financial
Conduct Authority (FCA), that it would cease the
publication of GBP, EUR, Swiss Franc and the
Japanese Yen LIBOR settings for all tenors, as well
as one week and two months U.S. dollar LIBOR
settings, on December 31, 2021 and would cease the
publication of overnight and twelve months U.S. dollar
LIBOR settings on June 30, 2023.
We have established a process to identify,
assess, plan for and remediate the use of LIBOR and
other reference rates affected by reference rate
reform that addresses both direct exposures on our
balance sheet, and, more importantly, the use of
LIBOR in our various service provider roles to our
customers. This process is led by a wide, multi-
disciplinary LIBOR program management office
(“LIBOR PMO”), established in September 2018, that
will continue to lead our transition efforts through
June of 2023.
The LIBOR PMO reports regularly to executive
management of the firm and our key regulators on
to client communications,
progress with respect
updating quantitative models and
information
technology systems, managing vendors, contracts
remediation, adoption of alternative reference rates
for various financial products and services, evaluation
of fallback provisions contained in LIBOR-priced
loans, investment securities, derivatives and long-
term debt and general operational readiness for each
stage of the transition.
Most of the work identified by the LIBOR PMO
for implementation of the transition is substantially
complete, and contingency plans have been
developed to deal with identified uncertainties. No
incremental material investments are expected to be
needed for systems and processes related to the
transition. Potential risks
impact our
transition
include
remediation
readiness across the industry, third party vendor
dependencies and resource constraints from the
concentration of remediation activities at key points in
the transition process.
that could
overall
efforts
Our direct on balance sheet exposures to LIBOR
are limited and primarily include assets held in the
investment portfolio, certain loans made through
Global Credit Finance and issuances of long-term
debt and preferred stock. We have planned for, and
are prepared to transition our remaining on balance
sheet exposures
in a manner consistent with
regulatory guidance and the availability of interim
solutions for various legacy LIBOR contracts. We will
not originate or issue new LIBOR-based loans or
State Street Corporation | 112
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
remaining
language. Our
long-term debt, and any purchases of LIBOR-based
investment securities will be screened for adequate
exposure
fallback
outstanding at June 2023 is largely governed by
existing fallback language, or jurisdictional legislation
that provides for appropriate fallback provisions. Our
financial performance depends, in part, on our ability
to adapt to market changes promptly, while avoiding
increased related expenses or operational errors.
Substantial risks and uncertainties are associated
with the market transition away from the use of
LIBOR as an interest rate benchmark used to
determine amounts payable under, and the value of,
relevant financial instruments and contracts.
Capital
Managing our capital
involves evaluating
whether our actual and projected levels of capital are
commensurate with our risk profile, are in compliance
with all applicable regulatory requirements, and are
sufficient to provide us with the financial flexibility to
undertake future strategic business initiatives. We
assess capital adequacy based on relevant regulatory
capital requirements, as well as our own internal
capital goals, targets and other relevant metrics.
Framework
Our objective with respect to management of our
capital is to maintain a strong capital base in order to
provide financial flexibility for our business needs,
including funding corporate growth and supporting
clients’ cash management needs, and to provide
protection against loss to depositors and creditors.
We strive to maintain an appropriate level of capital,
commensurate with our risk profile, on which an
attractive return to shareholders is expected to be
realized over both the short and long-term, while
protecting our obligations to depositors and creditors
and complying with regulatory capital requirements.
Our capital management focuses on our risk
exposures, the regulatory requirements applicable to
us with respect to multiple capital measures, the
evaluations and resulting credit ratings of the major
independent rating agencies, our return on capital at
both the consolidated and line-of-business level and
our capital position relative to our peers.
Assessment of our overall capital adequacy
includes the comparison of capital sources with
capital uses, as well as the consideration of the
quality and quantity of the various components of
capital. The assessment seeks to determine the
optimal level of capital and composition of capital
instruments to satisfy all constituents of capital, with
the lowest overall cost to shareholders. Other factors
considered in our assessment of capital adequacy
are strategic and contingency planning, stress testing
and planned capital actions.
Capital Adequacy Process (CAP)
to
regulatory
the minimum
Our primary federal banking regulator is the
Federal Reserve. Both we and State Street Bank are
subject
capital
requirements established by the Federal Reserve and
defined in the Federal Deposit Insurance Corporation
Improvement Act. State Street Bank must exceed the
regulatory capital thresholds for “well capitalized” in
order for our Parent Company to maintain its status
as a financial holding company. Accordingly, one of
to capital
our primary objectives with
management is to exceed all applicable minimum
regulatory capital requirements and for State Street
Bank
the PCA
guidelines established by the FDIC. Our capital
management activities are conducted as part of our
corporate-wide CAP and associated Capital Policy
and Guidelines.
to be “well capitalized” under
respect
We consider capital adequacy to be a key
element of our financial well-being, which affects our
ability to attract and maintain client relationships;
operate effectively in the global capital markets; and
satisfy regulatory, security holders and shareholder
needs. Capital is one of several elements that affect
our credit ratings and the ratings of our principal
subsidiaries.
In conformity with our Capital Policy and
Guidelines, we strive to achieve and maintain specific
internal capital levels, not just at a point in time, but
over time and during periods of stress, to account for
changes in our strategic direction, evolving economic
conditions, and financial and market volatility. We
have developed and implemented a corporate-wide
CAP to assess our overall capital in relation to our
risk profile and to provide a comprehensive strategy
for maintaining appropriate capital levels. The CAP
considers material risks under multiple scenarios,
with an emphasis on stress scenarios, and
encompasses existing processes and systems used
to measure our capital adequacy.
Capital Contingency Planning
Contingency planning is an integral component
of capital management. The objective of contingency
planning is to monitor current and forecast levels of
select capital, liquidity and other measures that serve
as early indicators of a potentially adverse capital or
liquidity adequacy situation. These measures are one
of the inputs used to set our internal capital adequacy
level. We review
for
appropriateness and relevance in relation to our
financial budget and capital plan. In addition, we
maintain an inventory of capital contingency actions
designed to conserve or generate capital to support
the unique risks in our business model, our client and
investor demands and regulatory requirements.
these measures annually
State Street Corporation | 113
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Stress Testing
Governance
We administer a robust business-wide stress-
testing program that executes stress tests each year
to assess the institution’s capital adequacy and/or
future performance under adverse conditions. Our
stress testing program is structured around what we
determine to be the key risks inherent in our
business, as assessed through a recurring material
risk
risk
identification process. The material
represents a bottom-up
identification process
institution’s most
approach
significant risk exposures across all on- and off-
balance sheet risk-taking activities, including credit,
market, liquidity, interest rate, operational, fiduciary,
business, reputation and regulatory risks. These key
risks serve as an organizing principle for much of our
risk management framework, as well as reporting,
including the “risk dashboard” provided to the Board.
identifying
the
to
In connection with the focus on our key risks,
each stress test incorporates idiosyncratic loss events
tailored to our unique risk profile and business
activities. Due to the nature of our business model
and our consolidated statement of condition, our risks
differ from those of a traditional commercial bank.
Over the past few years, stress scenarios have
included a deep recession in the U.S., including
impacts from the COVID-19 pandemic, a break-up of
the Eurozone, a severe recession in China and an oil
shock precipitated by turmoil in the Middle East/North
Africa region.
have
organizations
The Federal Reserve requires bank holding
companies with total consolidated assets of $50
billion or more, which includes us, to submit a capital
plan on an annual basis. The Federal Reserve uses
incorporates
its annual CCAR process, which
hypothetical financial and economic stress scenarios,
to review those capital plans and assess whether
banking
planning
processes that account for idiosyncratic risks and
provide for sufficient capital to continue operations
throughout times of economic and financial stress. As
part of its CCAR process, the Federal Reserve
assesses each organization’s capital adequacy,
capital planning process and plans to distribute
capital, such as dividend payments or stock purchase
programs. Management and Board risk committees
review, challenge and approve CCAR results and
the Federal
assumptions before submission
Reserve.
capital
to
Through the evaluation of our capital adequacy
and/or future performance under adverse conditions,
the stress testing process provides us important
insights for capital planning, risk management and
strategic decision-making.
In order to support integrated decision making,
we have identified three management elements to aid
in the compatibility and coordination of our CAP:
•
•
•
Management
Risk
identification,
measurement, monitoring and forecasting of
different types of risk and their combined
impact on capital adequacy;
-
Capital management
optimal capital levels; and
- determination of
Business Management - strategic planning,
budgeting,
forecasting and performance
management.
We have a hierarchical structure supporting
appropriate committee review of relevant risk and
capital information. The ongoing responsibility for
capital management rests with our Treasurer. The
Capital Management group within Global Treasury is
responsible for the Capital Policy and Guidelines,
development of the Capital Plan, the oversight of
global capital management and optimization.
The MRAC provides oversight of our capital
management, our capital adequacy, our internal
the major
targets and
the expectations of
independent credit rating agencies.
In addition,
MRAC approves our balance sheet strategy and
related activities. The Board’s RC assists the Board in
fulfilling its oversight responsibilities related to the
assessment and management of risk and capital. Our
Capital Policy is reviewed and approved annually by
the Board's RC.
Global Systemically Important Bank
identified by
We have been
the Financial
Stability Board and the Basel Committee on Banking
Supervision as a G-SIB. Our designation as a G-SIB
is based on a number of factors, as evaluated by
banking regulators, and requires us to maintain an
additional capital surcharge above the minimum
capital ratios set forth in the Basel III rule.
We and our depositary institution subsidiaries
are subject to the current Basel III minimum risk-
based capital and leverage ratio guidelines.
Additional information about G-SIBs is provided
under "Regulatory Capital Adequacy and Liquidity
Standards"
in
in
Business in this Form 10-K.
"Supervision and Regulation"
Regulatory Capital
We and State Street Bank, as advanced
approaches banking organizations, are subject to the
U.S. Basel III framework. Provisions of the Basel III
rule became effective with full implementation on
January 1, 2019. We are also subject to the final
market risk capital rule issued by U.S. banking
regulators effective as of January 2013.
State Street Corporation | 114
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Basel III rule provides for two frameworks
for monitoring capital adequacy: the “standardized”
approach and the “advanced” approaches, applicable
to advanced approaches banking organizations, like
prescribes
us.
standardized
standardized calculations
risk RWA,
including specified risk weights for certain on- and off-
balance sheet exposures.
approach
for credit
The
the
The advanced approaches consist of
Advanced Internal Ratings-Based Approach used for
the calculation of RWA related to credit risk, and the
Advanced Measurement Approach used
the
calculation of RWA related to operational risk.
for
The market risk capital rule requires us to use
internal models to calculate daily measures of VaR,
which reflect general market risk for certain of our
trading positions defined by the rule as “covered
positions,” as well as stressed-VaR measures to
the VaR measures. The rule also
supplement
requires a public disclosure composed of qualitative
and quantitative information about the market risk
associated with our trading activities and our related
VaR and stressed-VaR measures. The qualitative and
is
quantitative
information required by
provided under "Market Risk"
this
Management's Discussion and Analysis.
the rule
included
in
As required by the Dodd-Frank Act enacted in
2010, and the Stress Capital Buffer (SCB) rule
enacted in 2020, we and State Street Bank, as
advanced approaches banking organizations, are
subject to a "capital floor," also referred to as the
Collins Amendment,
the assessment of our
regulatory capital adequacy, including the capital
conservation buffer (CCB) and the SCB, for the
advanced approach and standardized approach,
respectively, and a countercyclical capital buffer. The
countercyclical buffer is currently set to zero by the
U.S. federal banking agencies. In addition, we are
in
subject to a G-SIB surcharge. Our risk-based capital
ratios for regulatory assessment purposes are the
lower of each ratio calculated under the standardized
approach and the advanced approaches.
The SCB replaced, under the standardized
approach, the capital conservation buffer with a buffer
calculated as the difference between the institution’s
starting and lowest projected CET1 ratio under the
CCAR severely adverse scenario plus planned
common stock dividend payments (as a percentage
of RWA) from the fourth through seventh quarter of
the CCAR planning horizon. The SCB requirement,
which became effective October 1, 2020, can be no
less than 2.5% of RWA. Breaching the SCB or other
regulatory buffer or surcharge will limit a banking
organization’s ability to make capital distributions and
discretionary bonus payments to executive officers.
The countercyclical capital buffer is currently set at
zero by U.S. banking regulators.
Our minimum risk-based capital ratios as of
January 1, 2021 include a CCB of 2.5% and a SCB of
2.5% for the advanced approaches and standardized
approach, respectively, a G-SIB surcharge of 1.0%,
and a countercyclical buffer of 0.0%. This results in
minimum risk-based ratios of 8.0% for the Common
Equity Tier 1 (CET1) capital ratio, 9.5% for the tier 1
capital ratio, and 11.5% for the total capital ratio.
Based on a calculation date of December 31,
2019, our current G-SIB surcharge,
through
December 31, 2022, is 1.0%. Based on a calculation
date of December 31, 2020, our G-SIB surcharge
beginning January 1, 2023 could have been 1.5%.
However, in May 2021, the Federal Reserve granted
our request for relief relating to the effects of the
MMLF program on the calculation of our G-SIB
surcharge. As a result of this relief, our G-SIB
surcharge for 2023 will remain at 1.0%.
State Street Corporation | 115
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents the regulatory capital structure and related regulatory capital ratios for us and
State Street Bank as of the dates indicated. We are subject to the more stringent of the risk-based capital ratios
calculated under the standardized approach and those calculated under the advanced approaches in the
standards.
assessment
TABLE 41: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
applicable
regulatory
adequacy
capital
under
bank
our
of
(Dollars in millions)
Common shareholders' equity:
State Street Corporation
State Street Bank
Basel III
Advanced
Approaches
December 31,
2021
Basel III
Standardized
Approach
December 31,
2021
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Basel III
Advanced
Approaches
December 31,
2021
Basel III
Standardized
Approach
December 31,
2021
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Common stock and related surplus
$
11,291
$
11,291
$
10,709
$
10,709
$
13,047
$
13,047
$
12,893
$
12,893
Retained earnings
25,238
25,238
23,442
23,442
15,700
15,700
12,939
12,939
Accumulated other comprehensive income
(loss)
(1,133)
(1,133)
187
187
Treasury stock, at cost
(10,009)
(10,009)
(10,609)
(10,609)
(926)
—
(926)
—
371
—
371
—
Total
25,387
25,387
23,729
23,729
27,821
27,821
26,203
26,203
Regulatory capital adjustments:
Goodwill and other intangible assets, net of
associated deferred tax liabilities
Other adjustments(1)
Common equity tier 1 capital
Preferred stock
Tier 1 capital
Qualifying subordinated long-term debt
Allowance for credit losses
Total capital
Risk-weighted assets:
Credit risk(2)
Operational risk(3)
Market risk
(8,935)
(505)
15,947
1,976
17,923
1,588
—
(8,935)
(505)
15,947
1,976
17,923
1,588
108
(9,019)
(333)
14,377
2,471
16,848
961
1
(9,019)
(333)
14,377
2,471
16,848
961
148
(8,667)
(309)
18,845
—
(8,667)
(309)
18,845
—
(8,745)
(152)
17,306
—
(8,745)
(152)
17,306
—
18,845
18,845
17,306
17,306
752
—
752
108
966
10
966
148
$
19,511
$
19,619
$
17,810
$
17,957
$
19,597
$
19,705
$
18,282
$
18,420
$
63,735
$
109,554
$
63,367
$ 114,892
$
57,405
$
106,405
$
58,960
$ 110,797
45,550
2,113
NA
2,113
44,150
2,188
NA
2,188
42,813
2,113
NA
2,113
43,663
2,188
NA
2,188
Total risk-weighted assets
Adjusted quarterly average assets
$
$
111,398
293,567
$
$
111,667
$ 109,705
$ 117,080
293,567
$ 263,490
$ 263,490
$
$
102,331
290,403
$
$
108,518
$ 104,811
$ 112,985
290,403
$ 260,489
$ 260,489
2021 Minimum
Requirements
Including Capital
Conservation
Buffer and G-SIB
Surcharge(4)
2020 Minimum
Requirements
Including Capital
Conservation
Buffer and G-SIB
Surcharge(4)
8.0 %
8.0 %
14.3 %
14.3 %
13.1 %
12.3 %
18.4 %
17.4 %
16.5 %
15.3 %
9.5
11.5
9.5
11.5
16.1
17.5
16.1
17.6
15.4
16.2
14.4
15.3
18.4
19.2
17.4
18.2
16.5
17.4
15.3
16.3
Capital
Ratios:
Common
equity tier 1
capital
Tier 1
capital
Total capital
(1) Other adjustments within CET1 capital primarily include the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax
assets, and other required credit risk based deductions.
(2) Under the advanced approaches, credit risk RWA includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of over-the-counter (OTC)
derivative contracts. We used a simple CVA approach in conformity with the Basel III advanced approaches.
(3) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period,
without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as
of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation
and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational RWA under the advanced approaches depending
on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(4) Minimum requirements include a CCB of 2.5% and a SCB of 2.5% for the advanced approaches and the standardized approach, respectively, a G-SIB surcharge of 1.0% and a countercyclical
buffer of 0%.
NA Not applicable
Our CET1 capital increased $1.57 billion as of December 31, 2021 compared to December 31, 2020, primarily
driven by net income and the issuance of common stock, partially offset by accumulated other comprehensive
income and dividend distributions in the year ended December 31, 2021.
Our Tier 1 capital increased $1.08 billion as of December 31, 2021 compared to December 31, 2020 under
both the advanced approaches and standardized approach due to the increase in CET1 capital, partially offset by
the partial redemption of the Series F preferred stock.
Our Tier 2 capital increased under the advanced approaches and standardized approach, as of December 31,
2021 compared to December 31, 2020, by $0.63 billion and $0.59 billion, respectively, mainly driven by the
issuance of our Tier 2 qualifying debt.
State Street Corporation | 116
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Total capital increased under the advanced approaches and standardized approach, as of December 31, 2021
compared to December 31, 2020, by $1.70 billion and $1.66 billion, respectively, mainly driven by the increase in
our Tier 1 capital and Tier 2 capital.
The table below presents a roll-forward of CET1 capital, Tier 1 capital and total capital for the years ended
December 31, 2021 and 2020.
TABLE 42: CAPITAL ROLL-FORWARD
(In millions)
Common equity tier 1 capital:
Basel III
Advanced
Approaches
December 31,
2021
Basel III
Standardized
Approach
December, 31,
2021
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Common equity tier 1 capital balance, beginning of period
$
14,377 $
14,377 $
12,213 $
Net income
Changes in treasury stock, at cost
Dividends declared
Goodwill and other intangible assets, net of associated deferred tax liabilities
Effect of certain items in accumulated other comprehensive income (loss)
Other adjustments
Changes in common equity tier 1 capital
Common equity tier 1 capital balance, end of period
Additional tier 1 capital:
Tier 1 capital balance, beginning of period
Changes in common equity tier 1 capital
Net issuance (redemption) of preferred stock
Changes in tier 1 capital
Tier 1 capital balance, end of period
Tier 2 capital:
Tier 2 capital balance, beginning of period
Net issuance and changes in long-term debt qualifying as tier 2
Changes in allowance for credit losses
Changes in tier 2 capital
Tier 2 capital balance, end of period
Total capital:
Total capital balance, beginning of period
Changes in tier 1 capital
Changes in tier 2 capital
2,693
600
(897)
84
(1,320)
410
1,570
15,947
16,848
1,570
(495)
1,075
17,923
962
627
(1)
626
1,588
17,810
1,075
626
2,693
600
(897)
84
(1,320)
410
1,570
15,947
16,848
1,570
(495)
1,075
17,923
1,109
627
(40)
587
1,696
17,957
1,075
587
2,420
(400)
(886)
93
1,057
(120)
2,164
14,377
15,175
2,164
(491)
1,673
16,848
1,100
(134)
(4)
(138)
962
16,275
1,673
(138)
12,213
2,420
(400)
(886)
93
1,057
(120)
2,164
14,377
15,175
2,164
(491)
1,673
16,848
1,185
(134)
58
(76)
1,109
16,360
1,673
(76)
Total capital balance, end of period
$
19,511 $
19,619 $
17,810 $
17,957
The following table presents a roll-forward of the Basel III advanced approaches and standardized approach
RWA for the years ended December 31, 2021 and 2020.
TABLE 43: ADVANCED & STANDARDIZED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD
(In millions)
Basel III
Advanced
Approaches
December 31, 2021
Basel III
Advanced
Approaches
December 31, 2020
Basel III
Standardized
Approach December
31, 2021
Basel III
Standardized
Approach December
31, 2020
Total risk-weighted assets, beginning of period
$
109,705 $
104,364 $
117,080 $
104,005
Changes in credit risk-weighted assets:
Net increase (decrease) in investment securities-wholesale
Net increase in loans
Net increase (decrease) in securitization exposures
Net increase (decrease) in repo-style transaction exposures
Net increase (decrease) in over-the-counter derivatives
exposures(1)
Net increase (decrease) in all other(2)
Net increase (decrease) in credit risk-weighted assets
Net increase (decrease) in market risk-weighted assets
Net increase (decrease) in operational risk-weighted assets
(476)
2,017
(404)
(440)
(1,353)
1,024
368
(75)
1,400
3,008
2,973
578
1,763
780
(498)
8,604
550
(3,813)
(707)
946
(489)
(1,658)
(863)
(2,567)
(5,338)
(75)
N/A
1,762
3,638
351
3,895
457
2,422
12,525
550
N/A
Total risk-weighted assets, end of period
$
111,398 $
109,705 $
111,667 $
117,080
(1) Under the advanced approaches, includes CVA RWA.
(2) Includes assets not in a definable category, non-material portfolio, cleared transactions, other wholesale, cash and due from banks, interest-bearing deposits with banks and equity exposures.
NA Not applicable.
State Street Corporation | 117
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of December 31, 2021, total advanced
approaches RWA increased $1.69 billion compared to
December 31, 2020, primarily due to an increase in
operational risk RWA and credit risk RWA. The
increase in operational risk RWA was primarily due to
an increase in the frequency of certain operational
loss events. The increase in credit risk RWA was
primarily driven by an increase in loans RWA, partially
offset by a decrease in over-the-counter derivatives
RWA.
As of December 31, 2021, total standardized
approach RWA decreased $5.41 billion compared to
December 31, 2020, primarily due to lower credit risk
RWA. The decrease in credit risk RWA was primarily
driven by a decrease in all other RWA, repo-style
transactions RWA, and over-the-counter derivatives
RWA, partially offset by an increase in loans RWA.
The regulatory capital ratios as of December 31,
2021, presented in Table 41: Regulatory Capital
Structure and Related Regulatory Capital Ratios, are
calculated under
the advanced approaches and
standardized approach in conformity with the Basel III
final rule. The advanced approaches based ratios
reflect calculations and determinations with respect to
our capital and related matters as of December 31,
2021, based on our and external data, quantitative
formulae, statistical models, historical correlations
to as
and assumptions, collectively
“advanced systems,” in effect and used by us for
those purposes as of the time we first reported such
ratios in a quarterly report on Form 10-Q or an annual
report on Form 10-K. Significant components of these
advanced systems involve the exercise of judgment
by us and our regulators, and our advanced systems
may not,
individually or collectively, precisely
represent or calculate the scenarios, circumstances,
outputs or other results for which they are designed
or intended.
referred
Our advanced systems are subject to update
and periodic revalidation in response to changes in
our business activities and our historical experiences,
forces and events experienced by the market broadly
or by individual financial institutions, changes in
regulations and regulatory interpretations and other
factors, and are also subject to continuing regulatory
review and approval. For example, a significant
operational loss experienced by another financial
institution, even if we do not experience a related
loss, could result in a material change in the output of
our advanced systems and a corresponding material
change in our risk exposures, our total RWA, and our
capital
to prior periods. An
operational loss that we experience could also result
in a material change in our capital requirements for
operational risk under the advanced approaches,
depending on the severity of the loss event, its
the seven Basel-defined
characterization among
ratios compared
UOM, and the stability of the distributional approach
for a particular UOM, and without direct correlation to
the effects of the loss event, or the timing of such
effects, on our results of operations.
Due to the influence of changes in these
advanced systems, whether resulting from changes in
data inputs, regulation or regulatory supervision or
interpretation, specific to us or market activities or
experiences or other updates or factors, we expect
that our advanced systems and our capital ratios
calculated in conformity with the Basel III final rule will
change and may be volatile over time, and that those
latter changes or volatility could be material as
calculated and measured from period to period. We
and State Street Bank are subject
further
to
regulatory guidance, action, and rule-making.
State Street Corporation | 118
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Tier 1 and Supplementary Leverage Ratios
We are subject to a minimum Tier 1 leverage
ratio and a supplementary leverage ratio. The Tier 1
leverage ratio is based on Tier 1 capital and adjusted
quarterly average on-balance sheet assets. The Tier
1 leverage ratio differs from the SLR primarily in that
the denominator of the Tier 1 leverage ratio is a
quarterly average of on-balance sheet assets, while
the SLR includes both on-balance sheet and certain
off-balance sheet exposures. We must maintain a
minimum Tier 1 leverage ratio of 4%.
We are also subject to a minimum SLR of 3%,
and as a U.S. G-SIB, we must maintain an additional
2% SLR buffer in order to avoid any limitations on
distributions to shareholders and discretionary bonus
payments to certain executives. If we do not maintain
this buffer, limitations on these distributions and
discretionary bonus payments would be increasingly
stringent based upon the extent of the shortfall.
TABLE 44: TIER 1 AND SUPPLEMENTARY LEVERAGE
RATIOS
(Dollars in millions)
State Street:
Tier 1 capital
Average assets
Less: adjustments for deductions
from tier 1 capital and other
Adjusted average assets for Tier 1
leverage ratio
Derivatives and repo-style
transactions and off-balance sheet
exposures
Adjustments for deductions of
qualifying central bank deposits
Total assets for SLR
Tier 1 leverage ratio(1)
Supplementary leverage ratio
State Street Bank(2):
Tier 1 capital
Average assets
Less: adjustments for deductions
from tier 1 capital and other
Adjusted average assets for Tier 1
leverage ratio
Off-balance sheet exposures
Adjustments for deductions of
qualifying central bank deposits
Total assets for SLR
Tier 1 leverage ratio (1)
Supplementary leverage ratio
December 31,
2021
December 31,
2020
$
17,923
$
16,848
303,007
277,055
(9,440)
(13,565)
293,567
263,490
32,985
34,379
(84,113)
(90,322)
$
242,439
$
207,547
6.1 %
7.4
6.4 %
8.1
$
18,845
$
17,306
299,379
273,599
(8,976)
(13,110)
290,403
32,985
260,489
38,591
(84,113)
(80,935)
$
239,275
$
218,145
6.5 %
7.9
6.6 %
7.9
(1) Tier 1 leverage ratios were calculated in conformity with the Basel III final rule.
(2) The SLR rule requires that, as of January 1, 2018, (i) State Street Bank
maintains an SLR of at least 6.0% to be well capitalized under the U.S. banking
regulators’ Prompt Corrective Action Framework and (ii) we maintain an SLR of at
least 5.0% to avoid limitations on capital distributions and discretionary bonus
payments. In addition to the SLR, State Street Bank is subject to a well capitalized
Tier 1 leverage ratio requirement of 5.0%.
Total Loss-Absorbing Capacity (TLAC)
The Federal Reserve's final rule on TLAC, LTD,
and clean holding company requirements for U.S.
domiciled G-SIBs, such as us, is intended to improve
the resiliency and resolvability of certain U.S. banking
prudential
organizations
standards, and requires us, among other things, to
comply with minimum requirements for external TLAC
hold:
and
we must
Specifically,
enhanced
through
LTD.
Amount equal to:
Greater of:
•
21.5% of total RWA (18.0% minimum
plus 2.5% plus a G-SIB surcharge
calculated for these purposes under
Method 1 of 1.0% plus any applicable
counter- cyclical buffer, which
is
currently 0%); and
•
9.5% of total leverage exposure (7.5%
minimum plus the SLR buffer of 2.0%),
as defined by the SLR final rule.
Greater of:
•
7.0% of RWA (6.0% minimum plus a G-
SIB surcharge calculated
these
purposes under method 2 of 1.0%); and
for
Combined
eligible tier 1
regulatory
capital and
LTD
Qualifying
external LTD
•
4.5% of total leverage exposure, as
defined by the SLR final rule.
As of April 1, 2020,
the TLAC and LTD
requirements calibrated to the SLR denominator to
reflect the deduction of certain central bank balances
as prescribed by the regulatory relief implemented
under the EGRRCPA.
The following table presents external LTD and
external TLAC as of December 31, 2021.
TABLE 45: TOTAL LOSS-ABSORBING CAPACITY
(Dollars in millions)
Actual
Requirement
As of December 31, 2021
Total loss-absorbing
capacity (eligible Tier 1
regulatory capacity and
long-term debt):
Risk-weighted assets
$ 31,231
28.0 % $ 24,008
21.5 %
Supplementary
leverage exposure
Long-term debt:
31,231
12.9
23,032
9.5
Risk-weighted assets
13,308
11.9
7,817
Supplementary
leverage exposure
13,308
5.5
10,910
7.0
4.5
Additional information about TLAC is provided
under
in
"Supervision and Regulation" in Business in this Form
10-K.
Loss-Absorbing Capacity"
"Total
State Street Corporation | 119
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Regulatory Developments
In April 2018, the Federal Reserve issued a
proposed rule which would replace the current 2.0%
SLR buffer for G-SIBs, with a buffer equal to 50% of
their G-SIB surcharge. This proposal would also
make conforming modifications to our TLAC and
eligible LTD requirements applicable to G-SIBs. At
this point in time, it is unclear whether this proposal
will be implemented as proposed.
for calculating
In November 2019, the Federal Reserve and
other U.S. federal banking agencies issued a final
rule that, among other things, implements the SA-
CCR, a new methodology
the
exposure amount for derivative contracts. Under the
final rule, which became effective on January 1, 2022,
we will have the option to use the SA-CCR or the
IMM to measure the exposure amount of our cleared
and uncleared derivative transactions under our
advanced approaches calculation. We will be
required to determine the amount of these exposures
using the SA-CCR under our standardized approach
capital calculation. Additionally, we will have to apply
a revised formula to determine the RWA amount of
our central counterparty default fund contributions.
Applying the SA-CCR to our derivative exposures as
of December 31, 2021, in place of then-applicable
Current Exposure Method
the
standardized approach, with all else equal, would on
a pro- forma basis increase our total RWA as of that
date by approximately 10%. As part of a plan to
partially offset these SA-CCR RWA impacts, various
business actions have been identified for optimization
and completion in the first half of 2022.
(CEM), under
the standardized approach,
On March 4, 2020, the U.S. federal banking
agencies issued the SCB final rule that replaces,
under
the capital
conservation buffer (2.5%) with a SCB calculated as
the difference between an institution’s starting and
lowest projected CET1 ratio under
the CCAR
severely adverse scenario plus planned common
stock dividend payments (as a percentage of RWA)
from the fourth through seventh quarter of the CCAR
planning horizon. Based on our results from the 2021
supervisory stress test, our SCB for the period of
October 1, 2021 through September 2022 is set at
the minimum of 2.5% of RWA.
The Federal Reserve and other U.S. federal
banking agencies issued an interim final rule effective
in March 2020 and later finalized on a permanent
basis on August 26, 2020, which revised the definition
of eligible retained income for all U.S. banking
organizations. The
revised definition of eligible
retained income makes any automatic limitations on
capital distributions, where a banking organization's
regulatory ratios were to decline below the respective
minimum requirements, take effect on a more gradual
basis.
Following the launch of the MMLF program,
which we participated in, the Federal Reserve issued
an interim final rule on March 19, 2020 (followed by a
final rule on September 29, 2020), allowing Bank
Holding Companies
to exclude assets
(BHCs)
purchased with the MMLF program from their RWA,
total
leverage exposure and average
total
consolidated assets. No new credit extensions were
made after March 31, 2021, as the program had
expired.
On March 27, 2020, the BCBS announced the
deferral of the implementation of the revisions to the
Basel III framework to January 1, 2023. As of now,
the U.S. federal banking agencies have not formally
proposed the implementation of the BCBS revisions.
total
Effective April 1, 2020, the Federal Reserve and
other U.S. federal banking agencies adopted a final
rule as part of EGRRCPA
that establishes a
deduction for qualifying central bank deposits from a
custodial banking organization’s
leverage
exposure equal to the lesser of (i) the total amount of
funds the custodial banking organization and its
consolidated subsidiaries have on deposit at
qualifying central banks and (ii) the total amount of
client funds on deposit at the custodial banking
organization that are linked to fiduciary or custodial
and safekeeping accounts. For the quarter ended
December 31, 2021, we deducted $84.1 billion of
average balances held on deposit at central banks
from the denominator used in the calculation of our
SLR, based on this custodial banking deduction.
On October 20, 2020, the Federal Reserve and
other U.S. federal banking agencies issued a final
rule that requires us and State Street Bank to make
for
certain deductions
investments in certain unsecured debt instruments,
including eligible LTD under the TLAC rule, issued by
the Parent Company and other U.S. and foreign G-
SIBs. The final rule became effective on April 1, 2021.
regulatory capital
from
In light of the decision to administer a new stress
test, the Federal Reserve limited the ability of all
CCAR banking organizations
to make capital
distributions in the third and fourth quarters of 2020,
although banking organizations were permitted to pay
common stock dividends at previous levels provided
such distributions did not exceed an amount
determined by a formula based on the banking
organization's recent income. As a result, CCAR
banking organizations,
including us, were not
permitted to return capital to shareholders in the form
of common share repurchases during
third
quarter and fourth quarter of 2020.
the
On August 10, 2020, the Federal Reserve
confirmed that our SCB was 2.5% for the period
starting on October 1, 2020 and ending on
September 30, 2021.
State Street Corporation | 120
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On December 18, 2020, following the release of a second round of stress test results for 2020, the Federal
Reserve modified the restrictions on capital distributions for the first quarter of 2021. Common stock dividends and
share repurchases in the first quarter of 2021 were limited to the average of our net income for the four preceding
quarters plus a number of shares equal to the share issuances in the quarter related to expensed employee
compensation, provided that we did not increase the amount of our common stock dividends to be larger than the
level paid in the second quarter of 2020. On March 25, 2021, the Federal Reserve extended these restrictions
through the second quarter of 2021.
On June 24, 2021, we were notified by the Federal Reserve of the results from the 2021 supervisory stress
test. Our SCB calculated under this supervisory stress test was well below the 2.5% minimum, resulting in an SCB
at that floor, which was effective starting October 1, 2021 and will run through September 30, 2022. The Federal
Reserve also lifted the restrictions on capital distributions implemented in response to the COVID-19 pandemic and
we are currently governed in our capital distributions by minimum capital requirements inclusive of the SCB.
For additional information about regulatory developments, refer to the "Regulatory Capital Adequacy and
Liquidity Standards" section of "Supervision and Regulation" in Business in this Form 10-K.
Capital Actions
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and
outstanding as of December 31, 2021:
TABLE 46: PREFERRED STOCK ISSUED AND OUTSTANDING
Preferred
Stock(1):
Issuance Date
Depositary
Shares
Issued
Amount
outstanding
(in millions)
Ownership
Interest Per
Depositary
Share
Liquidation
Preference
Per Share
Liquidation
Preference
Per
Depositary
Share
Series D
February 2014
30,000,000
$
750
1/4,000th
$
100,000
$
25
Series F(3)
May 2015
250,000
250
1/100th
100,000
1,000
Series G
April 2016
20,000,000
500
1/4,000th
100,000
25
Series H
September 2018
500,000
500
1/100th
100,000
1,000
Carrying
Value as of
December
31, 2021
(In millions)
Redemption
Date(2)
$
742
March 15,
2024
247
September 15,
2020
493
March 15,
2026
Dividend
Payment
Frequency
Quarterly:
March, June,
September
and December
Quarterly:
March, June,
September
and December
Quarterly:
March, June,
September
and December
Semi-annually:
June and
December
494
December 15,
2023
Per Annum
Dividend Rate
5.90% to but
excluding March 15,
2024, then a floating
rate equal to the
three-month LIBOR
plus 3.108%
5.25% to but
excluding
September 15,
2020, then a floating
rate equal to the
three-month LIBOR
plus 3.597%, or
3.7998% effective
December 15, 2021
5.35% to but
excluding March 15,
2026, then a floating
rate equal to the
three-month LIBOR
plus 3.709%
5.625% to but
excluding December
15, 2023, then a
floating rate equal to
the three-month
LIBOR plus 2.539%
(1) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital
treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid
dividends, without accumulation of any undeclared dividends.
(2) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price
per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(3) Series F preferred stock is redeemable on September 15, 2020 and on each succeeding dividend payment date.
State Street Corporation | 121
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On March 15, 2021, we redeemed an aggregate of $500 million, or 5,000 of the 7,500 outstanding shares of
our non-cumulative perpetual preferred stock, Series F, for cash at a redemption price of $100,000 per share
(equivalent to $1,000 per depositary share) plus all declared and unpaid dividends.
The following table presents the dividends declared for each of the series of preferred stock issued and
outstanding for the periods indicated:
TABLE 47: PREFERRED STOCK DIVIDENDS
Years Ended December 31,
Dividends
Declared per
Share
2021
Dividends
Declared per
Depositary
Share
Total
Dividends
Declared per
Share
2020
Dividends
Declared per
Depositary
Share
Total
$
— $
— $
— $
1,313 $
0.33 $
5,900
3,808
5,352
5,625
1.48
38.08
1.32
56.25
$
44
15
27
28
114
5,900
6,223
5,352
5,625
1.48
62.23
1.32
56.25
6
44
47
27
28
$
152
(Dollars in millions, except
per share amounts)
Preferred Stock:
Series C
Series D
Series F
Series G
Series H
Total
Common Stock
In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock.
The offering price was $87.60 per share and net proceeds totaled approximately $1.9 billion. We expect to use
these net proceeds to finance our planned acquisition of the BBH Investor Services business.
In June 2019, the Federal Reserve issued a non-objection to our capital plan submitted as part of the 2019
CCAR submission; and in connection with that capital plan, our Board approved a common share repurchase
program authorizing the repurchase of up to $2.0 billion of our common stock from July 1, 2019 through June 30,
2020 (the 2019 Program). We repurchased $500 million of our common stock in each of the third and fourth
quarters of 2019 and the first quarter of 2020 under the 2019 Program.
On March 16, 2020, we, along with the other U.S. G-SIBs, suspended common share repurchases and
maintained this suspension through the fourth quarter of 2020 in response to the COVID-19 pandemic. This
suspension was consistent with limitations imposed by the Federal Reserve beginning in the second quarter of
2020. As a result, we had no repurchases of our common stock in the second, third or fourth quarters of 2020. In
December 2020, the Federal Reserve issued results of 2020 resubmission stress tests and authorized us to
continue to pay common stock dividends at current levels and to resume repurchasing common shares in the first
quarter of 2021. In January 2021, our Board authorized a common share repurchase program for the repurchase of
up to $475 million of our common stock through March 31, 2021. We repurchased $475 million of our common
stock in the first quarter of 2021. In April 2021, our Board authorized a common share repurchase program for the
repurchase of up to $425 million of our common stock through June 30, 2021, in compliance with the limit set by the
Federal Reserve. We repurchased $425 million of our common stock in the second quarter of 2021. In July 2021,
our Board authorized a share repurchase program for the repurchase of up to $3.0 billion of our common stock
through the end of 2022.
In connection with our planned acquisition of the BBH Investor Services business, we did not repurchase any
common stock during the third and fourth quarters of 2021 under the common share repurchase plan approved by
our Board in July 2021, and we do not intend to repurchase any common stock during the first quarter of 2022. We
intend to resume our common share repurchases during the second quarter of 2022.
The table below presents the activity under our common share repurchase program for the period indicated:
TABLE 48: SHARES REPURCHASED
2019 Program
Shares Acquired
(In millions)
Shares Acquired
(In millions)
Year Ended December 31, 2021
Average Cost per Share
11.2 $
80.00 $
Year Ended December 31, 2020
Average Cost per Share
6.5 $
77.35 $
Total Acquired
(In millions)
Total Acquired
(In millions)
900
500
State Street Corporation | 122
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The table below presents the dividends declared
on common stock for the periods indicated:
TABLE 49: COMMON STOCK DIVIDENDS
Years Ended December 31,
2021
2020
Dividends
Declared
per Share
Total
(In
millions)
Dividends
Declared
per Share
Total
(In
millions)
Common
Stock
$
2.18 $
779 $
2.08 $
734
recorded in our consolidated statement of condition.
We revalue the securities on loan and the collateral
daily to determine if additional collateral is necessary
or if excess collateral is required to be returned to the
borrower. We held, as agent, cash and securities
totaling $404.12 billion and $463.27 billion as
collateral for indemnified securities on loan as of
December 31, 2021 and December 31, 2020,
respectively.
Federal and state banking regulations place
certain restrictions on dividends paid by subsidiary
banks to the parent holding company. In addition,
banking regulators have the authority to prohibit bank
holding companies
from paying dividends. For
information concerning limitations on dividends from
our subsidiary banks, refer to "Related Stockholder
Matters"
for
Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities,
and
financial
statements in this Form 10-K. Our common stock and
preferred stock dividends, including the declaration,
to
timing and amount
consideration and approval by the Board at the
relevant times.
thereof, are subject
Item 5, Market
the consolidated
included under
to Note 15
to
transactions,
Stock purchases may be made using various
including open market
types of
purchases, accelerated share repurchases or other
transactions off the market, and may be made under
Rule 10b5-1
timing and
trading programs. The
amount of any stock purchases and the type of
transaction will depend on several factors, including
investment opportunities, our capital position, our
financial performance, market conditions and the
amount of common stock issued as part of employee
compensation programs. The common share
repurchase program does not have specific price
targets and may be suspended at any time.
OFF-BALANCE SHEET ARRANGEMENTS
necessitates
the substantial volume of
On behalf of clients enrolled in our securities
lending program, we lend securities to banks, broker/
dealers and other institutions. In most circumstances,
we indemnify our clients for the fair market value of
those securities against a failure of the borrower to
return such securities. Though these transactions are
collateralized,
these
credit-based
activities
underwriting and monitoring processes. The
aggregate amount of indemnified securities on loan
totaled $385.74 billion and $440.88 billion as of
December 31, 2021 and December 31, 2020,
respectively. We require the borrower to provide
collateral in an amount in excess of 100% of the fair
market value of the securities borrowed. We hold the
collateral received in connection with these securities
lending services as agent, and the collateral is not
detailed
indemnified
invested. We require
the principal
the
to
The cash collateral held by us as agent is
invested on behalf of our clients. In certain cases, the
cash collateral is invested in third-party repurchase
agreements, for which we indemnify the client against
the
loss of
repurchase
counterparty
agreement to provide collateral in an amount in
excess of 100% of the amount of the repurchase
agreement. In our role as agent, the indemnified
repurchase agreements and the related collateral
held by us are not recorded in our consolidated
statement of condition. Of the collateral of $404.12
billion and $463.27 billion, referenced above, $61.56
billion and $54.43 billion was invested in indemnified
repurchase agreements as of December 31, 2021
and December 31, 2020, respectively. We or our
agents held $67.01 billion and $58.09 billion as
collateral for indemnified investments in repurchase
agreements as of December 31, 2021 and December
31, 2020, respectively.
Additional
information about our securities
finance activities and other off-balance sheet
arrangements is provided in Notes 10, 12 and 14 to
the consolidated financial statements in this Form 10-
K.
State Street Corporation | 123
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SIGNIFICANT ACCOUNTING ESTIMATES
Our consolidated
financial statements are
prepared in conformity with U.S. GAAP, and we apply
accounting policies that affect the determination of
amounts
financial
statements. Additional information on our significant
accounting policies, including references to applicable
footnotes, is provided in Note 1 to the consolidated
financial statements in this Form 10-K.
the consolidated
reported
in
Certain of our accounting policies, by their
nature, require management to make judgments,
involving significant estimates and assumptions,
about the effects of matters that are inherently
uncertain. These estimates and assumptions are
based on information available as of the date of the
consolidated financial statements, and changes in
this information over time could materially affect the
amounts of assets, liabilities, equity, revenue and
in subsequent consolidated
reported
expenses
financial statements.
credit
recurring
for
those associated with
allowance
Based on the sensitivity of reported financial
statement amounts to the underlying estimates and
assumptions, the more significant accounting policies
applied by us have been identified by management
fair value
as
measurements,
losses,
impairment of goodwill and other intangible assets,
and contingencies. These accounting policies require
the most subjective or complex judgments, and
underlying estimates and assumptions could be most
subject to revision as new information becomes
judgments,
available. An understanding of
estimates and assumptions underlying
these
accounting policies is essential in order to understand
our reported consolidated results of operations and
financial condition.
the
significant
The following is a discussion of the above-
estimates.
mentioned
these significant
Management has discussed
accounting estimates with the E&A Committee of the
Board.
accounting
Fair Value Measurements
We carry certain of our financial assets and
liabilities at fair value in our consolidated financial
statements on a recurring basis, including trading
account assets and liabilities, AFS debt securities,
types of
certain equity securities and various
derivative financial instruments.
liabilities are
Changes in the fair value of these financial
assets and
recorded either as
components of our consolidated statement of income
or as components of other comprehensive income
within shareholders' equity
in our consolidated
statement of condition. In addition to those financial
assets and liabilities that we carry at fair value in our
consolidated financial statements on a recurring
basis, we estimate the fair values of other financial
assets and liabilities that we carry at amortized cost in
our consolidated statement of condition, and we
disclose these fair value estimates in the notes to our
consolidated financial statements. We estimate the
fair values of these financial assets and liabilities
using the definition of fair value described below.
Additional information with respect to the assets and
liabilities carried by us at fair value on a recurring
basis is provided in Note 2 to the consolidated
financial statements in this Form 10-K.
liability
for an asset or
U.S. GAAP defines fair value as the price that
would be received to sell an asset or paid to transfer
a liability in the principal or most advantageous
in an orderly
market
transaction between market participants on
the
measurement date. When we measure fair value for
our financial assets and liabilities, we consider the
principal or the most advantageous market in which
we would transact; we also consider assumptions that
market participants would use when pricing the asset
or liability. When possible, we look to active and
observable markets to measure the fair value of
identical, or similar, financial assets and liabilities.
When identical financial assets and liabilities are not
traded
to market-
observable data for similar assets and liabilities. In
some instances, certain assets and liabilities are not
actively traded in observable markets; as a result, we
use alternate valuation techniques to measure their
fair value.
in active markets, we
look
We categorize the financial assets and liabilities
that we carry at fair value in our consolidated
statement of condition on a recurring basis based on
U.S. GAAP's prescribed
three-level valuation
hierarchy. The hierarchy gives the highest priority to
quoted prices in active markets for identical assets or
liabilities (level 1) and the lowest priority to valuation
methods using significant unobservable inputs (level
3).
With respect
instruments, we
to derivative
evaluate the fair value impact of the credit risk of our
counterparties. We consider such factors as the
market-based probability of default by our
counterparties, and our current and expected
remaining
future net exposures by
potential
maturities,
appropriate
determining
measurements of fair value.
the
in
State Street Corporation | 124
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Allowance for Credit Losses
In January 2020, we adopted ASC 326, which
replaces the incurred loss methodology with an
expected
loss methodology. We maintain an
allowance for credit losses to support our on-balance
sheet credit exposures, including financial assets held
at amortized cost. We also maintain an allowance for
unfunded commitments and
to
support our off-balance credit exposure. The two
components together represent the allowance for
credit losses.
letters of credit
Determining
the appropriateness of
the
allowance is complex and requires judgment by
management about the effect of matters that are
inherently uncertain. In future periods, factors and
forecasts then prevailing may result in significant
changes in the allowance for credit losses in those
future periods. We estimate credit losses over the
contractual life of the financial asset while factoring in
prepayment activity where supported by data over a
three year reasonable and supportable
forecast
period. We utilize a baseline, upside and downside
scenario which are applied based on a probability
weighting, in order to better reflect management’s
expectation of expected credit losses given existing
market conditions and the changes in the economic
environment. The multiple scenarios are based on a
three year horizon (or less depending on contractual
maturity) and then revert linearly over a two year
period to a ten-year historical average thereafter. The
contractual
term excludes expected extensions,
renewals and modifications, but includes prepayment
assumptions where applicable.
forecasts used
Our allowance for credit losses is sensitive to a
number of inputs, including macroeconomic forecast
assumptions and credit rating migrations during the
period. Our macroeconomic
in
determining the December 31, 2021 allowance for
credit losses consisted of three scenarios. The
baseline scenario reflects ongoing GDP growth and
falling unemployment in 2022, generally in line with
market expectations, and consistent with waning
COVID transmission and improved supply chains.
The upside scenario reflects a faster recovery in
consumer spending and stronger productivity growth
in 2022 relative
the baseline scenario. The
downside scenario contemplates a double-dip
recession due to resurgent COVID infections that
results in negative GDP growth, rising unemployment,
and deteriorating credit conditions in early 2022. We
placed the most weight on our baseline scenario, with
the remaining weighting split equally between the
upside and downside scenarios.
to
Keeping all other factors constant, we estimate
that if we had applied 100% weighting to the
downside scenario, the allowance for credit losses as
of December 31, 2021 would have been
approximately $50 million higher. This estimate is
intended to reflect the sensitivity of the allowance for
credit losses to changes in our scenario weights and
is not intended to be indicative of future changes in
the allowance for credit losses.
Additional information about our allowance for
credit losses is provided in Notes 3 and 4 to the
consolidated financial statements in this Form 10-K.
Goodwill and Other Intangible Assets
assets,
primarily
intangible
Goodwill represents the excess of the cost of an
acquisition over the fair value of the net tangible and
other intangible assets acquired at the acquisition
date. Other intangible assets represent purchased
client
long-lived
relationships, core deposit intangible assets and
technology that can be distinguished from goodwill
because of contractual rights or because the asset
can be exchanged on its own or in combination with a
related contract, asset or liability. Other intangible
assets are initially measured at their acquisition date
fair value,
the determination of which requires
management judgment. Goodwill is not amortized,
while other intangible assets are amortized over their
estimated useful lives.
a
by
factors
regulator;
that may
impairment
Management reviews goodwill for impairment
annually or more frequently if circumstances arise or
events occur that indicate an impairment of the
carrying amount may exist. We begin our review by
first assessing qualitative
to determine
whether it is more likely than not that the fair value of
a reporting unit is less than its carrying amount.
Events
include:
indicate
significant or adverse changes in the business,
economic or political climate; an adverse action or
assessment
unanticipated
competition; and a more-likely-than-not expectation
that we will sell or otherwise dispose of a business to
which the goodwill or other intangible assets relate. If
we conclude from the qualitative assessment of
goodwill impairment that it is more likely than not that
a reporting unit’s fair value is greater than its carrying
amount, quantitative tests are not required. However,
if we determine it is more likely than not that a
reporting unit’s fair value is less than its carrying
amount, then we complete a quantitative assessment
to determine if there is goodwill impairment. We may
elect to bypass the qualitative assessment and
complete a quantitative assessment in any given
year.
In 2021, we assessed goodwill for impairment
using a qualitative assessment. Based on our
evaluation of the qualitative factors noted above, we
determined that it was more likely than not that the
fair value of each of the reporting units exceeded its
State Street Corporation | 125
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
respective carrying amount. We determined there
was no goodwill impairment in 2021.
Other intangible assets are supported by the
future cash flows that are directly associated with and
expected to arise as a direct result of the use of the
intangible asset, less any costs associated with the
intangible asset’s eventual disposition. We evaluate
other intangible assets for impairment at the lowest
level for which there are identifiable cash flows that
are largely independent of the cash flows from other
groups of assets using the following process. First,
we routinely assess whether impairment indicators
indicators are
are present. When
identified as being present, we compare
the
estimated future net undiscounted cash flows of the
intangible asset with its carrying value. If the future
net undiscounted cash flows are greater than the
carrying value, then there is no impairment, but if the
intangible asset's net undiscounted cash flows are
less than its carrying value, we are required to
calculate impairment. An impairment is recognized by
writing the intangible asset down to its fair value. We
evaluate intangible assets for indicators of impairment
on a quarterly basis. There were no impairments
taken on other intangible assets in 2021.
impairment
Additional information about goodwill and other
intangible assets, including information by line of
business, is provided in Note 5 to the consolidated
financial statements in this Form 10-K.
Contingencies
Information on significant estimates and
judgments related with establishing litigation reserves
is discussed in Note 13 of the consolidated financial
statements in this Form 10-K.
RECENT ACCOUNTING DEVELOPMENTS
Information with respect to recent accounting
the
developments
consolidated financial statements in this Form 10-K.
is provided
in Note 1
to
State Street Corporation | 126
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The information provided under “Market Risk
Management”
in our
Management's Discussion and Analysis in this Form
10-K, is incorporated by reference herein.
"Financial Condition"
in
ITEM
SUPPLEMENTARY DATA
8.
FINANCIAL STATEMENTS AND
Additional information about restrictions on the
transfer of funds from State Street Bank to the Parent
Company is provided under "Related Stockholder
Matters" in Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities, and under "Capital" in “Financial
Condition” in our Management’s Discussion and
Analysis in this Form 10-K.
State Street Corporation | 127
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of State Street Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of condition of State Street Corporation (the
“Corporation”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December
31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation
at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Corporation's internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) and our report dated February 17, 2022 expressed an unqualified
opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility
is to express an opinion on the Corporation’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
State Street Corporation | 128
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to
which it relates.
Description of the
Matter
How We Addressed
the Matter in Our
Audit
Servicing Fee Revenue
Revenue recognized by the Corporation as servicing fees was $5.5 billion for the year
ended December 31, 2021. As disclosed in Notes 24 and 25 of the consolidated financial
statements, servicing fee revenue involves revenue streams from various products which
include custody, product accounting, daily pricing and administration, master trust and
master custody, depotbank services (a fund oversight role created by non-US regulation),
record-keeping, cash management, and investment manager and alternative investment
manager operations outsourcing. The Corporation’s servicing fee revenue involves a
significant volume of contracts and transactions and is sourced from multiple systems and
processes across different business teams and geographies.
Auditing servicing fee revenue was complex and involved significant audit effort due to the
non-standard nature of the Corporation’s contracts, the volume of contracts, the impact of
contract renegotiations on accrued servicing fees, and the number of different processes
used to recognize revenue.
We identified and obtained an understanding of the processes used by the Corporation to
recognize revenue transactions. We evaluated the design and tested the operating
effectiveness of controls over the Corporation’s processes for recognizing servicing fee
revenue, including, among others, controls over the review of client contracts, the
calculations of the key drivers of revenue (e.g., assets under custody) and the flow of this
information from the business teams negotiating contract amendments to the department
accruing revenue.
Among other procedures, to test servicing fee revenue, we selected a sample of client
contracts and analyzed the contracts to determine whether terms that may have an impact
on revenue recognition, including performance obligations and specified fees, were
identified and properly considered in the evaluation of the accounting for the contracts. In
addition, we reperformed the calculation of revenue for a sample of revenue transactions.
We also agreed the amounts recognized to source documents and tested the
mathematical accuracy of the recorded revenue. For a selection of clients, we inquired of
the business teams involved in contract negotiations to assess the state of those
negotiations and any effect on accrued servicing fees. We obtained third party confirmation
of the client balance due for a sample of servicing fees receivable.
We have served as the Corporation's auditor since 1972.
Boston, Massachusetts
February 17, 2022
/s/ Ernst & Young LLP
State Street Corporation | 129
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts)
2021
2020
2019
Years Ended December 31,
Fee revenue:
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income:
Interest income
Interest expense
Net interest income
Other income:
Gains (losses) from sales of available-for-sale securities, net
Other income
Total other income
Total revenue
Provision for credit losses
Expenses:
Compensation and employee benefits
Information systems and communications
Transaction processing services
Occupancy
Acquisition and restructuring costs
Amortization of other intangible assets
Other
Total expenses
Income before income tax expense
Income tax expense
Net income
Net income available to common shareholders
Earnings per common share:
Basic
Diluted
Average common shares outstanding (in thousands):
Basic
Diluted
$
5,549 $
5,167 $
2,053
1,211
416
783
10,012
1,908
3
1,905
57
53
110
1,880
1,363
356
733
9,499
2,575
375
2,200
4
—
4
12,027
(33)
11,703
88
4,554
1,661
1,024
444
65
245
896
8,889
3,171
478
4,450
1,550
978
489
50
234
965
8,716
2,899
479
$
$
$
2,693 $
2,572 $
2,420 $
2,257 $
7.30 $
7.19
6.40 $
6.32
352,565
357,962
352,865
357,106
Cash dividends declared per common share
$
2.18 $
2.08 $
5,074
1,824
1,058
471
720
9,147
3,941
1,375
2,566
(1)
44
43
11,756
10
4,541
1,465
983
470
77
236
1,262
9,034
2,712
470
2,242
2,009
5.43
5.38
369,911
373,666
1.98
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 130
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
Net income
Other comprehensive income (loss), net of related taxes:
Foreign currency translation, net of related taxes of $86, ($40) and $2,
respectively
Net unrealized gains (losses) on available-for-sale securities, net of
reclassification adjustment and net of related taxes of ($344), $165 and
$212, respectively
Net unrealized gains on available-for-sale securities designated in fair
value hedges, net of related taxes of $6, $1 and $6, respectively
Non-credit impairment on held-to-maturity securities previously identified
under ASC 320, net of related taxes of $0, $0 and $1, respectively (1)
Years Ended December 31,
2021
2020
2019
$
2,693 $
2,420 $
2,242
(413)
488
(9)
(912)
436
545
16
—
3
—
Net unrealized gains (losses) on cash flow hedges, net of related taxes of
($24), $46 and $9, respectively
(59)
127
Net unrealized gains (losses) on retirement plans, net of related taxes of
$16, $3 and $(8), respectively
Other comprehensive income (loss)
Total comprehensive income
48
(1,320)
9
1,063
$
1,373 $
3,483 $
2,806
18
1
25
(16)
564
(1) We adopted ASC 326, on January 1, 2020. Non-credit impairment on HTM securities was previously recognized under ASC 320.
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 131
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
December 31, 2021
December 31, 2020
(Dollars in millions, except per share amounts)
Assets:
Cash and due from banks
Interest-bearing deposits with banks
Securities purchased under resale agreements
Trading account assets
Investment securities available-for-sale (less allowance for credit losses of $2
and $0)
Investment securities held-to-maturity purchased under money market liquidity
facility (less allowance for credit losses of $0 and $1) (fair value of $0 and
$3,304)
Investment securities held-to-maturity (less allowance for credit losses of $0
and $2) (fair value of $42,271 and $50,003)
Loans (less allowance for credit losses on loans of $87 and $122)
Premises and equipment (net of accumulated depreciation of $5,391 and
$4,825)
Accrued interest and fees receivable
Goodwill
Other intangible assets
Other assets
Total assets
Liabilities:
Deposits:
Non-interest-bearing
Interest-bearing - U.S.
Interest-bearing - non-U.S.
Total deposits
Securities sold under repurchase agreements
Short term borrowings under money market liquidity facility
Other short-term borrowings
Accrued expenses and other liabilities
Long-term debt
Total liabilities
Commitments, guarantees and contingencies (Notes 12 and 13)
Shareholders’ equity:
Preferred stock, no par, 3,500,000 shares authorized:
Series D, 7,500 shares issued and outstanding
Series F, 2,500 shares issued and outstanding
Series G, 5,000 shares issued and outstanding
Series H, 5,000 shares issued and outstanding
Common stock, $1 par, 750,000,000 shares authorized:
503,879,642 and 503,879,642 shares issued, and 365,982,820 and
353,156,279 shares outstanding
Surplus
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost (137,896,822 and 150,723,363 shares)
Total shareholders’ equity
Total liabilities and shareholders' equity
$
3,631 $
$
$
106,358
3,012
758
73,399
—
42,430
32,445
2,261
3,278
7,621
1,816
37,615
314,624 $
56,461 $
102,985
95,589
255,035
1,575
—
128
17,048
13,475
287,261
742
247
493
494
504
10,787
25,238
(1,133)
(10,009)
27,363
$
314,624 $
3,467
116,960
3,106
815
59,048
3,299
48,929
27,803
2,154
3,105
7,683
1,827
36,510
314,706
49,439
102,331
88,028
239,798
3,413
3,302
685
27,503
13,805
288,506
742
742
493
494
504
10,205
23,442
187
(10,609)
26,200
314,706
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 132
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in millions, except per
share amounts, shares
in thousands)
Preferred
Stock
Shares
Amount
Surplus
Common Stock
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury Stock
Shares
Amount
Total
Balance at December 31, 2018
$ 3,690
503,880 $
504 $ 10,061 $ 20,553 $
(1,356)
123,933 $ (8,715) $ 24,737
Reclassification of certain tax
effects(1)
Net income
Other comprehensive income
Preferred stock redeemed
(728)
Cash dividends declared:
Common stock - 1.98 per share
Preferred stock
Common stock acquired
Common stock awards exercised
Other
(84)
564
84
2,242
(22)
(728)
(210)
—
2,242
564
(750)
(728)
(210)
95
(24)
(1)
24,884
(1,600)
(1,600)
(2,295)
(32)
103
3
198
(22)
Balance at December 31, 2019
$ 2,962
503,880 $
504 $ 10,132 $ 21,918 $
(876)
146,490 $ (10,209) $ 24,431
Net income
Other comprehensive income
Preferred stock redeemed
(491)
Cash dividends declared:
Common stock - $2.08 per share
Preferred stock
Common stock acquired
Common stock awards exercised
Other
1,063
2,420
(9)
(734)
(152)
(1)
72
1
2,420
1,063
(500)
(734)
(152)
(500)
172
—
6,464
(2,233)
2
(500)
100
—
Balance at December 31, 2020
$ 2,471
503,880 $
504 $ 10,205 $ 23,442 $
187
150,723 $ (10,609) $ 26,200
Net income
Other comprehensive (loss)
Common stock issued
Preferred stock redeemed
Cash dividends declared:
Common stock - $2.18 per
share
Preferred stock
Common stock acquired
Common stock awards exercised
Other
(495)
2,693
(1,320)
516
(21,724)
1,384
(5)
(779)
(114)
1
48
18
11,250
(2,350)
(2)
(900)
116
—
2,693
(1,320)
1,900
(500)
(779)
(114)
(900)
164
19
Balance at December 31, 2021
$ 1,976
503,880 $
504 $ 10,787 $ 25,238 $
(1,133)
137,897 $ (10,009) $ 27,363
(1) Represents the reclassification from accumulated other comprehensive income into retained earnings as a result of our adoption of ASU 2018-02 - Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2019.
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 133
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax (benefit)
Amortization of other intangible assets
Other non-cash adjustments for depreciation, amortization and accretion, net
Losses (gains) related to investment securities, net
Provision for credit losses
Change in trading account assets, net
Change in accrued interest and fees receivable, net
Change in collateral deposits, net
Change in unrealized losses (gains) on foreign exchange derivatives, net
Change in other assets, net
Change in accrued expenses and other liabilities, net
Other, net
Net cash (used in) provided by operating activities
Investing Activities:
Net (increase) decrease in interest-bearing deposits with banks
Net (increase) decrease in securities purchased under resale agreements
Proceeds from sales of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Purchases of available-for-sale securities
Purchases of held-to-maturity securities under the MMLF program
Proceeds from maturities of held-to-maturity securities under the MMLF program
Proceeds from maturities of held-to-maturity securities
Purchases of held-to-maturity securities
Sale of loans
Net (increase) in loans
Business acquisitions, net of cash acquired
Divestitures
Purchases of equity investments and other long-term assets
Purchases of premises and equipment, net
Other, net
Net cash provided by (used in) investing activities
Financing Activities:
Net (decrease) in time deposits
Net increase in all other deposits
Net (decrease) increase in securities sold under repurchase agreements
Net (decrease) increase in short-term borrowings under money market liquidity facility
Net (decrease) in other short-term borrowings
Proceeds from issuance of long-term debt, net of issuance costs
Payments for long-term debt and obligations under finance leases
Payments for redemption of preferred stock
Proceeds from issuance of common stock, net of issuance costs
Repurchases of common stock
Repurchases of common stock for employee tax withholding
Payments for cash dividends
Net cash provided by (used in) financing activities
Net increase
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure:
Interest paid
Income taxes paid, net
Years Ended December 31,
2021
2020
2019
$
2,693 $
2,420 $
2,242
(162)
245
1,312
(57)
(33)
57
(173)
(7,662)
(3,448)
691
(574)
401
(6,710)
10,602
94
12,822
23,484
(53,750)
—
3,299
15,586
(8,583)
172
(4,779)
(346)
13
(216)
(811)
241
(2,172)
(363)
15,611
(1,838)
(3,302)
(557)
1,343
(1,443)
(500)
1,900
(900)
(39)
(866)
9,046
164
3,467
(194)
234
1,276
(4)
88
99
127
(2,951)
3,652
(1,406)
(170)
361
3,532
(47,995)
(1,619)
2,645
23,644
(37,873)
(29,242)
25,984
15,179
(13,981)
324
(1,939)
—
—
(1,436)
(560)
1,335
(65,534)
(33,466)
91,391
2,311
3,302
(154)
2,489
(1,724)
(500)
—
(515)
(78)
(889)
62,167
165
3,302
$
$
3,631 $
3,467 $
37 $
559
375 $
403
(130)
236
1,101
1
10
(54)
(28)
287
2,034
(713)
294
410
5,690
4,075
3,192
5,642
20,407
(38,164)
—
—
10,390
(6,938)
131
(650)
(54)
—
(647)
(730)
720
(2,626)
(11,255)
12,767
20
—
(2,253)
1,495
(402)
(750)
—
(1,585)
(81)
(930)
(2,974)
90
3,212
3,302
1,382
510
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 134
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting
Policies
Basis of Presentation
The accounting and financial reporting policies
of State Street Corporation conform to U.S. GAAP.
State Street Corporation, the Parent Company, is a
financial holding company headquartered in Boston,
Massachusetts. Unless otherwise indicated or unless
the context requires otherwise, all references in these
notes to consolidated financial statements to “State
Street,” “we,” “us,” “our” or similar references mean
State Street Corporation and its subsidiaries on a
consolidated basis, including our principal banking
subsidiary, State Street Bank.
We have two lines of business:
funds and other
Investment Servicing,
through State Street
Institutional Services, State Street Global Markets,
State Street Digital and CRD, provides services for
institutional clients, including mutual funds, collective
investment
investment pools,
corporate and public retirement plans, insurance
companies, investment managers, foundations and
endowments worldwide. Products include: custody;
product accounting; daily pricing and administration;
master trust and master custody; depotbank services
(a fund oversight role created by non-U.S. regulation);
foreign
record-keeping;
exchange, brokerage and other trading services;
securities finance and enhanced custody products;
deposit and short-term investment facilities; loans and
lease financing; investment manager and alternative
investment manager
outsourcing;
performance, risk and compliance analytics; and
financial data management to support institutional
investors.
cash management;
operations
through
Included within our Investment Servicing line of
business is CRD, which we acquired in 2018. The
Charles River Investment Management System is a
technology offering which is designed to automate
and simplify the institutional investment process
across asset classes, from portfolio management and
risk analytics
trading and post-trade
settlement, with integrated compliance and managed
data throughout. With the acquisition of CRD, we took
the first step in building our front-to-back platform,
State Street Alpha. Today our State Street Alpha
platform combines portfolio management, trading and
tools, and
execution, analytics and compliance
advanced data aggregation and integration with other
industry platforms and providers. In 2021, we further
expanded our technology offering with the acquisition
of Mercatus, Inc., enabling the launch of Alpha for
Private Markets.
Investment Management, through State Street
Global Advisors, provides a broad
range of
investment management strategies and products for
our clients. Our investment management strategies
investment strategies. Our AUM
and products span the risk/reward spectrum for
equity, fixed income and cash assets, including core
and enhanced indexing, multi-asset strategies, active
quantitative and fundamental active capabilities and
alternative
is
currently primarily weighted to indexed strategies. In
addition, we provide a breadth of services and
solutions, including ESG investing, defined benefit
and defined contribution and Global Fiduciary
Solutions (formerly Outsourced Chief
Investment
Officer). State Street Global Advisors is also a
provider of ETFs, including the SPDR® ETF brand.
Consolidation
Our consolidated financial statements include
the accounts of the Parent Company and its majority-
and wholly-owned
controlled
and
subsidiaries, including State Street Bank. All material
inter-company transactions and balances have been
eliminated. Certain previously reported amounts have
been
to current-year
presentation.
to conform
reclassified
otherwise
We consolidate subsidiaries
in which we
in unconsolidated
Investments
exercise control.
subsidiaries, recorded in other assets, generally are
accounted for under the equity method of accounting
if we have the ability to exercise significant influence
over the operations of the investee. For investments
accounted for under the equity method, our share of
income or loss is recorded in software and processing
fees
income.
Investments not meeting the criteria for equity-
method treatment are measured at fair value through
earnings, except for investments where a fair market
value is not readily available, which are accounted for
under the cost method of accounting.
in our consolidated statement of
Use of Estimates
The preparation of consolidated
financial
statements in conformity with U.S. GAAP requires
management to make estimates and assumptions in
the application of certain of our significant accounting
policies
the reported
amounts of assets, liabilities, equity, revenue and
expenses. As a result of unanticipated events or
circumstances, actual results could differ from those
estimates.
that may materially affect
Foreign Currency Translation
The assets and liabilities of our operations with
functional currencies other than the U.S. dollar are
translated at month-end exchange rates, and revenue
and expenses are
that
approximate average monthly exchange rates. Gains
or losses from the translation of the net assets of
subsidiaries with functional currencies other than the
U.S. dollar, net of related taxes, are recorded in
AOCI, a component of shareholders’ equity.
translated at
rates
State Street Corporation | 135
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
For purposes of the consolidated statement of
cash flows, cash and cash equivalents are defined as
cash and due from banks.
Interest-Bearing Deposits with Banks
Interest-bearing deposits with banks generally
consist of highly
investments
liquid, short-term
maintained at the Federal Reserve Bank and other
non-U.S. central banks with original maturities at the
time of purchase of one month or less.
Securities Purchased Under Resale Agreements
and
Sold Under Repurchase
Agreements
Securities
financing
Securities purchased under resale agreements
and sold under repurchase agreements are treated
as collateralized
transactions, and are
recorded in our consolidated statement of condition at
the securities will be
the amounts at which
subsequently resold or repurchased, plus accrued
interest. Our policy is to take possession or control of
securities underlying
resale agreements either
directly or through agent banks, allowing borrowers
the right of collateral substitution and/or short-notice
termination. We revalue these securities daily to
determine if additional collateral is necessary from the
borrower to protect us against credit exposure. We
can use these securities as collateral for repurchase
agreements.
securities
repurchase
under
sold
For
agreements
investment
collateralized by our
securities portfolio, the dollar value of the securities
remains in investment securities in our consolidated
statement of condition. Where a master netting
agreement exists or both parties are members of a
common clearing organization, resale and repurchase
agreements are recorded on a net basis when
specific netting criteria are met.
Fee and Net Interest Income
The majority of fees from investment servicing,
investment management, securities finance, trading
services and certain types of software and processing
fees are recorded in our consolidated statement of
income based on the consideration specified in
contracts with our customers, and excludes taxes
collected from customers subsequently remitted to
governmental authorities. We recognize revenue as
the services are performed or at a point in time
depending on the nature of the services provided.
Payments made to third party service providers are
generally recognized on a gross basis when we
control those services and are deemed to be the
principal. Additional information about revenue from
contracts with customers is provided in Note 25.
Interest income on interest-earning assets and
interest expense on interest-bearing liabilities are
recorded in our consolidated statement of income as
components of NII, and are generally based on the
effective yield of the related financial asset or liability.
Other Significant Policies
The following table identifies our other significant
accounting policies and the note and page where a
detailed description of each policy can be found:
Fair Value
Investment Securities
Loans
Goodwill and Other Intangible Assets
Derivative Financial Instruments
Offsetting Arrangements
Contingencies
Variable Interest Entities
Equity-Based Compensation
Income Taxes
Earnings Per Common Share
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Revenue from Contracts with Customers
Note
2
3
4
5
10
11
13
14
18
22
23
25
Page
Page
Page
Page
Page
Page
Page
Page
Page
Page
Page
Page
137
144
149
154
158
162
166
168
173
177
179
181
State Street Corporation | 136
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Developments
The FASB issued ASU 2020-04, Reference Rate
Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting,
which was effective as of March 12, 2020. The
guidance (1) provides temporary optional expedients
and exceptions to the existing guidance on contract
modifications and hedge accounting in relation to the
transition from LIBOR and other rates impacted by
reference rate reform to alternative reference rates;
and (2) allows a one-time election to transfer to AFS
or trading HTM debt securities that reference an
interest rate affected by reference rate reform. In
January 2021, the FASB issued ASU No. 2021-01,
Reference Rate Reform (Topic 848): Reference Rate
Reform - Scope, which clarifies that the scope of the
initial accounting relief includes derivative instruments
that do not reference a rate that is expected to be
for
that use an
discontinued but
margining, discounting or contract price alignment
that is modified as a result of reference rate reform.
interest rate
In the fourth quarter of 2021, we made the one-
time election to reclassify to AFS certain HTM
securities that reference an interest rate affected by
reference rate reform. Securities with a book value of
$438 million referencing LIBOR and other eligible
reference rates were reclassified from HTM to AFS.
We recognized a $72 million unrealized gain in AOCI
on the reclassification of such securities and a
$58 million realized gain on securities reclassified and
subsequently sold.
We also elected
to apply certain optional
expedients related to hedge accounting and contract
modification with no significant impact on the 2021
results.
Additionally, we continue to evaluate accounting
standards that were recently issued but not yet
adopted as of December 31, 2021; none are
expected to have a material impact to our financial
statements.
Note 2. Fair Value
Fair Value Measurements
We carry trading account assets and liabilities,
AFS debt securities, certain equity securities and
various types of derivative financial instruments, at
fair value in our consolidated statement of condition
on a recurring basis. Changes in the fair values of
these financial assets and liabilities are recorded
either as components of our consolidated statement
of
income or as components of AOCI within
shareholders' equity in our consolidated statement of
condition.
We measure fair value for the above-described
financial assets and liabilities in conformity with U.S.
GAAP that governs the measurement of the fair value
of financial instruments. Management believes that its
valuation techniques and underlying assumptions
used to measure fair value conform to the provisions
of U.S. GAAP. We categorize the financial assets and
liabilities that we carry at fair value based on a
three-level valuation hierarchy. The
prescribed
hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (level
1) and the lowest priority to valuation methods using
significant unobservable inputs (level 3). If the inputs
used to measure a financial asset or liability cross
different levels of the hierarchy, categorization is
based on the lowest-level input that is significant to
fair-value measurement. Management's
the
assessment of the significance of a particular input to
the overall fair-value measurement of a financial
asset or liability requires judgment, and considers
factors specific to that asset or liability. The three
levels of the valuation hierarchy are described below.
Level 1. Financial assets and liabilities with
values based on unadjusted quoted prices
for
identical assets or liabilities in an active market. Our
level 1 financial assets and liabilities primarily include
positions in U.S. government securities and highly
liquid U.S. and non-U.S. government fixed-income
securities. Our level 1 financial assets also include
actively traded exchange- traded equity securities.
Level 2. Financial assets and liabilities with
values based on quoted prices for similar assets and
liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or
liability. Level 2 inputs include the following:
▪ Quoted prices for similar assets or liabilities
in active markets;
▪ Quoted prices for identical or similar assets
or liabilities in non-active markets;
▪
▪
Pricing models whose inputs are observable
for substantially the full term of the asset or
liability; and
from,
Pricing models whose inputs are derived
by,
or
principally
observable market
through
correlation or other means for substantially
the full term of the asset or liability.
corroborated
information
Our
level 2
financial assets and
liabilities
primarily include non-U.S. debt securities carried in
trading account assets and various types of fixed-
income AFS investment securities, as well as various
types of foreign exchange and interest rate derivative
instruments.
Fair value for our AFS investment securities
categorized in level 2 is measured primarily using
information obtained from independent third parties.
State Street Corporation | 137
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This third-party information is subject to review by
management as part of a validation process, which
includes obtaining an understanding of the underlying
assumptions and the level of market participant
information used to support those assumptions. In
addition, management
significant
assumptions used by third parties to available market
information. Such information may include known
trades or, to the extent that trading activity is limited,
comparisons
information
pertaining to credit expectations, execution prices and
the timing of cash flows and, where information is
available, back- testing.
to market
compares
research
Derivative instruments categorized in level 2
predominantly represent foreign exchange contracts
used in our trading activities, for which fair value is
measured using discounted cash-flow techniques,
with inputs consisting of observable spot and forward
points, as well as observable interest rate curves.
With respect to derivative instruments, we evaluate
the impact on valuation of the credit risk of our
counterparties. We consider factors such as the
likelihood of default by our counterparties, our current
and potential future net exposures and remaining
maturities in determining the fair value. Valuation
adjustments associated with derivative instruments
were not material to those instruments for the years
ended December 31, 2021 and 2020.
Level 3. Financial assets and liabilities with
values based on prices or valuation techniques that
require inputs that are both unobservable in the
market and significant to the overall measurement of
fair value. These
reflect management's
judgment about the assumptions that a market
inputs
participant would use in pricing the financial asset or
liability, and are based on
the best available
internally
information, some of which may be
developed. The following provides a more detailed
discussion of our financial assets and liabilities that
we may categorize in level 3 and the related valuation
methodology.
•
•
The fair value of our investment securities
categorized in level 3 is measured using
information obtained from third-party sources,
typically non-binding broker/dealer quotes, or
through
internally-developed
pricing models. Management has evaluated
its methodologies used to measure fair value
and has considered the level of observable
market
to
categorize the securities in level 2.
the use of
information
insufficient
to be
The fair value of certain foreign exchange
is measured
contracts, primarily options,
using an option-pricing model. Because of a
limited number of observable transactions,
certain model inputs are not observable, such
as implied volatility surface, but are derived
from observable market information.
Our level 3 financial assets and liabilities are
similar in structure and profile to our level 1 and level
2 financial instruments, but they trade in less liquid
markets, and the measurement of their fair value is
therefore less observable.
The following tables present information with
respect to our financial assets and liabilities carried at
fair value in our consolidated statement of condition
on a recurring basis as of the dates indicated:
State Street Corporation | 138
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements on a Recurring Basis
As of December 31, 2021
Quoted Market
Prices in Active
Markets
(Level 1)
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
Impact of
Netting(1)
Total Net
Carrying Value
in Consolidated
Statement of
Condition
(In millions)
Assets:
Trading account assets:
U.S. government securities
Non-U.S. government securities
Other
Total trading account assets
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Non-U.S. sovereign, supranational and non-
U.S. agency
Other
Total non-U.S. debt securities
Asset-backed securities:
Student loans
Collateralized loan obligations
Non-agency CMBS and RMBS(2)
Other
Total asset-backed securities
State and political subdivisions
Other U.S. debt securities
$
39 $
— $
—
—
39
17,939
—
17,939
—
—
—
—
—
—
—
—
—
—
—
—
134
585
719
—
18,208
18,208
1,995
2,087
23,547
3,098
30,727
211
2,155
52
91
2,509
1,272
2,744
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total available-for-sale investment
securities
17,939
55,460
Other assets:
Derivative instruments:
Foreign exchange contracts
Interest rate contracts
Total derivative instruments
Other
2
2
4
—
15,183
—
15,183
667
— $ (11,079)
—
—
—
—
(11,079)
—
Total assets carried at fair value
$
17,982 $
72,029 $
— $ (11,079) $
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts
Other derivative contracts
Total derivative instruments
Total liabilities carried at fair value
$
$
1 $
15,824 $
— $ (10,395) $
—
1
301
16,125
—
—
—
(10,395)
1 $
16,125 $
— $ (10,395) $
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the
counterparty. Netting also reflects asset and liability reductions of $1.97 billion and $1.28 billion, respectively, for cash collateral received from and provided to
derivative counterparties.
(2) Consists entirely of non-agency CMBS.
State Street Corporation | 139
39
134
585
758
17,939
18,208
36,147
1,995
2,087
23,547
3,098
30,727
211
2,155
52
91
2,509
1,272
2,744
73,399
4,106
2
4,108
667
78,932
5,430
301
5,731
5,731
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements on a Recurring Basis
Quoted Market
Prices in Active
Markets
(Level 1)
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
As of December 31, 2020
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Impact of
Netting(1)
40
239
536
815
6,575
14,305
20,880
1,996
2,291
22,087
3,355
29,729
314
2,966
78
90
3,448
1,548
3,443
59,048
5,803
1
5,804
525
66,192
(In millions)
Assets:
Trading account assets:
U.S. government securities
Non-U.S. government securities
Other
Total trading account assets
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Non-U.S. sovereign, supranational and non-
U.S. agency
Other
Total non-U.S. debt securities
Asset-backed securities:
Student loans
Collateralized loan obligations
Non-agency CMBS and RMBS(2)
Other
Total asset-backed securities
State and political subdivisions
Other U.S. debt securities
$
40 $
— $
—
17
57
6,575
—
6,575
—
—
—
—
—
—
—
—
—
—
—
—
239
519
758
—
14,305
14,305
1,996
2,291
22,087
3,355
29,729
314
2,952
78
90
3,434
1,548
3,443
Total available-for-sale investment
securities
6,575
52,459
$
—
—
—
—
—
—
—
—
—
—
—
—
—
14
—
—
14
—
—
14
Other assets:
Derivative instruments:
Foreign exchange contracts
Interest rate contracts
Total derivative instruments
Other
Total assets carried at fair value
Liabilities:
Accrued expenses and other liabilities:
Trading account liabilities:
Other
Derivative instruments:
Foreign exchange contracts
Interest rate contracts
Other derivative contracts
Total derivative instruments
Total liabilities carried at fair value
$
$
$
—
1
1
—
25,941
—
25,941
525
2 $ (20,140)
—
2
—
—
(20,140)
—
6,633 $
79,683 $
16 $ (20,140) $
4 $
— $
— $
— $
4
1
—
—
1
5 $
25,925
42
157
26,124
26,124 $
1
—
—
1
(15,558)
—
—
(15,558)
1 $ (15,558) $
10,369
42
157
10,568
10,572
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the
counterparty. Netting also reflects asset and liability reductions of $5.87 billion and $1.29 billion, respectively, for cash collateral received from and provided to
derivative counterparties.
(2) Consists entirely of non-agency CMBS.
State Street Corporation | 140
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present activity related to our level 3 financial assets during the years ended December
31, 2021 and 2020, respectively. Transfers into and out of level 3 are reported as of the beginning of the period
presented. During the years ended December 31, 2021 and 2020, transfers into level 3 were primarily related to
collateralized loan obligations and a U.S. corporate bond, for which fair value was measured using information
obtained from third party sources, including non-binding broker/dealer quotes. During the years ended December
31, 2021 and 2020, transfers out of level 3 were mainly related to collateralized loan obligations, certain non-U.S.
debt securities and a U.S. corporate bond, for which fair value was measured using prices based on observable
market information.
Fair Value Measurements Using Significant Unobservable Inputs
Year Ended December 31, 2021
Total Realized and
Unrealized Gains (Losses)
Fair Value
as of
December 31,
2020
Recorded
in
Revenue(1)
Recorded in
Other
Comprehensive
Income(1)
Purchases
Sales
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Fair Value
as of
December
31, 2021(1)
Change in
Unrealized Gains
(Losses) Related
to Financial
Instruments
Held as of
December 31,
2021
(In millions)
Assets:
Available-for-sale Investment
securities:
Asset-backed securities:
Collateralized loan
obligations
$
Total asset-backed securities
Other U.S. debt securities
Total available-for-sale
investment securities
Other assets:
Derivative instruments:
Foreign exchange
contracts
Total derivative instruments
Total assets carried at fair
value
$
14
14
—
14
2
2
$
—
—
—
—
(3)
(3)
—
—
—
—
—
—
$
106
$ —
$
106
—
106
1
1
—
—
—
—
—
$
—
—
—
—
—
—
—
—
15
15
—
—
$
(120)
$
(120)
(15)
(135)
—
—
—
—
—
—
—
$
—
$
16
$
(3) $
—
$
107
$ —
$
—
$
15
$
(135) $
—
$
(1)
(1)
(1)
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized
gains (losses) on derivative instruments are included within foreign exchange trading services.
Fair Value Measurements Using Significant Unobservable Inputs
Year Ended December 31, 2020
Total Realized and
Unrealized Gains (Losses)
Fair Value
as of
December 31,
2019
Recorded
in
Revenue(1)
Recorded
in Other
Comprehensive
Income(1)
Purchases
Sales
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Fair Value
as of
December
31, 2020(1)
Change in
Unrealized Gains
(Losses) Related
to Financial
Instruments
Held as of
December 31,
2020
(In millions)
Assets:
Available-for-sale Investment
securities:
Asset-backed securities:
Collateralized loan
obligations
Non-U.S. debt securities:
Asset-backed securities
Other
Total non-U.S. debt securities
Total available-for-sale
investment securities
Other assets:
Derivative instruments:
Foreign exchange contracts
Total derivative instruments
Total assets carried at fair
value
Total asset-backed securities
1,820
(10)
864
(95)
(77)
50
(2,538)
$
1,820
$
—
$
(10) $
864
$
(95) $
(77) $
50
$
(2,538) $
—
—
—
—
—
(6)
(6)
887
45
932
2,752
4
4
35
2
37
27
—
—
1
—
1
—
—
—
865
(95)
5
5
—
—
(5)
—
(5)
(82)
(1)
(1)
—
—
—
50
—
—
(918)
(47)
(965)
(3,503)
$
2,756
$
(6) $
27
$
870
$
(95) $
(83) $
50
$
(3,503) $
16
$
—
—
$
2
2
(3)
(3)
(3)
14
14
—
—
—
14
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized
gains (losses) on derivative instruments are included within foreign exchange trading services.
State Street Corporation | 141
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents quantitative information, as of the dates indicated, about the valuation techniques
and significant unobservable inputs used in the valuation of our level 3 financial assets and liabilities measured at
fair value on a recurring basis for which we use internally-developed pricing models. The significant unobservable
inputs for our level 3 financial assets and liabilities whose fair value is measured using pricing information from non-
binding broker/dealer quotes are not included in the table, as the specific inputs applied are not provided by the
broker/dealer.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
Range
Weighted-Average
As of
December
31, 2021
As of
December
31, 2020
Valuation
Technique
Significant
Unobservable
Input(1)
As of December
31, 2021
As of
December
31, 2021
As of
December
31, 2020
(Dollars in millions)
Significant unobservable inputs readily
available to State Street:
Assets:
Derivative Instruments, foreign exchange contracts $
Total
Liabilities:
$
Derivative instruments, foreign exchange contracts $
Total
$
— $
— $
— $
— $
2 Option model
Volatility
5.3 % - 15.9%
15.2 %
7.9 %
2
1 Option model
Volatility
14.7 % - 14.7%
14.7 %
7.7 %
1
(1) Significant changes in these unobservable inputs may result in significant changes in fair value measurement of the derivative instrument.
Financial Instruments Not Carried at Fair Value
Estimates of fair value for financial instruments not carried at fair value in our consolidated statement of
condition are generally subjective in nature, and are determined as of a specific point in time based on the
characteristics of the financial instruments and relevant market information. Disclosure of fair value estimates is not
required by U.S. GAAP for certain items, such as lease financing, equity- method investments, obligations for
pension and other post-retirement plans, premises and equipment, other intangible assets and income-tax assets
and liabilities. Accordingly, aggregate fair-value estimates presented do not purport to represent, and should not
be considered representative of, our underlying “market” or franchise value. In addition, because of potential
differences in methodologies and assumptions used to estimate fair values, our estimates of fair value should not be
compared to those of other financial institutions.
We use the following methods to estimate the fair values of our financial instruments:
•
•
•
For financial instruments that have quoted market prices, those quoted prices are used to estimate fair
value;
For financial instruments that have no defined maturity, have a remaining maturity of 180 days or less,
or reprice frequently to a market rate, we assume that the fair value of these instruments approximates
their reported value, after taking into consideration any applicable credit risk; and
For financial instruments for which no quoted market prices are available, fair value is estimated using
information obtained from independent third parties, or by discounting the expected cash flows using an
estimated current market interest rate for the financial instrument.
The generally short duration of certain of our assets and liabilities results in a significant number of financial
instruments for which fair value equals or closely approximates the amount recorded in our consolidated statement
of condition. These financial instruments are reported in the following captions in our consolidated statement of
condition: cash and due from banks; interest-bearing deposits with banks; securities purchased under resale
agreements; accrued interest and fees receivable; deposits; securities sold under repurchase agreements; and
other short-term borrowings.
In addition, due to the relatively short duration of certain of our loans, we consider fair value for these loans to
approximate their reported value. The fair value of other types of loans, such as leveraged loans, commercial real
estate loans, purchased receivables and municipal loans is estimated using information obtained from independent
third parties or by discounting expected future cash flows using current rates at which similar loans would be made
to borrowers with similar credit ratings for the same remaining maturities. Commitments to lend have no reported
value because their terms are at prevailing market rates.
State Street Corporation | 142
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the reported amounts and estimated fair values of the financial assets and
liabilities not carried at fair value, as they would be categorized within the fair value hierarchy, as of the dates
indicated:
Reported
Amount
Estimated Fair
Value
Quoted Market
Prices in Active
Markets (Level 1)
Pricing Methods with
Significant
Observable Market
Inputs (Level 2)
Pricing Methods with
Significant
Unobservable Market
Inputs (Level 3)
Fair Value Hierarchy
(In millions)
December 31, 2021
Financial Assets:
Cash and due from banks
$
3,631 $
3,631 $
3,631 $
— $
Interest-bearing deposits with banks
106,358
106,358
Securities purchased under resale agreements
Investment securities held-to-maturity
Net loans(1)
Other(2)
Financial Liabilities:
Deposits:
Non-interest-bearing
Interest-bearing - U.S.
Interest-bearing - non-U.S.
Securities sold under repurchase agreements
Other short-term borrowings
Long-term debt
Other(2)
3,012
42,430
32,445
1
3,012
42,271
32,528
1
—
—
2,160
—
—
106,358
3,012
40,111
29,862
1
$
56,461 $
56,461 $
— $
56,461 $
102,985
95,589
1,575
128
13,475
1
102,985
95,589
1,575
128
13,552
1
—
—
—
—
—
—
102,985
95,589
1,575
128
13,385
1
—
—
—
—
2,666
—
—
—
—
—
—
167
—
(1) Includes $8 million of loans classified as held-for-sale that were measured at fair value in level 2 as of December 31, 2021.
(2) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.
Reported
Amount
Estimated Fair
Value
Quoted Market
Prices in Active
Markets (Level 1)
Pricing Methods with
Significant
Observable Market
Inputs (Level 2)
Pricing Methods with
Significant
Unobservable Market
Inputs (Level 3)
Fair Value Hierarchy
(In millions)
December 31, 2020
Financial Assets:
Cash and due from banks
$
3,467 $
3,467 $
3,467 $
— $
Interest-bearing deposits with banks
Securities purchased under resale agreements
HTM securities purchased under the MMLF
program
Investment securities held-to-maturity
Net loans
Other(1)
Financial Liabilities:
Deposits:
Non-interest-bearing
Interest-bearing - U.S.
Interest-bearing - non-U.S.
Securities sold under repurchase agreements
Short-term borrowings under the MMLF
program
Other short-term borrowings
Long-term debt
Other(1)
116,960
3,106
3,299
48,929
27,803
4,753
116,960
3,106
3,304
50,003
27,884
4,753
—
—
—
6,115
—
—
116,960
3,106
3,304
43,888
25,668
4,753
$
49,439 $
49,439 $
— $
49,439 $
102,331
88,028
3,413
3,302
685
13,805
4,753
102,331
88,028
3,413
3,302
685
14,162
4,753
—
—
—
—
—
—
—
102,331
88,028
3,413
3,302
685
14,049
4,753
—
—
—
—
—
2,216
—
—
—
—
—
—
—
113
—
(1) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.
State Street Corporation | 143
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment Securities
Investment securities held by us are classified as either trading account assets, AFS, HTM or equity securities
held at fair value at the time of purchase and reassessed periodically, based on management’s intent.
Generally, trading assets are debt and equity securities purchased in connection with our trading activities and,
as such, are expected to be sold in the near term. Our trading activities typically involve active and frequent buying
and selling with the objective of generating profits on short-term movements. AFS investment securities are those
securities that we intend to hold for an indefinite period of time. AFS investment securities include securities utilized
as part of our asset and liability management activities that may be sold in response to changes in interest rates,
prepayment risk, liquidity needs or other factors. HTM securities are debt securities that management has the intent
and the ability to hold to maturity.
Trading assets are carried at fair value. Both realized and unrealized gains and losses on trading assets are
recorded in foreign exchange trading services revenue in our consolidated statement of income. AFS securities are
carried at fair value, with any allowance for credit losses recorded through the consolidated statement of income
and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of AFS
investment securities are computed using the specific identification method and are recorded in gains (losses)
related to investment securities, net, in our consolidated statement of income. HTM investment securities are
carried at cost, adjusted for amortization of premiums and accretion of discounts, with any allowance for credit
losses recorded through the consolidated statement of income.
State Street Corporation | 144
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost, fair value and associated unrealized gains and losses of AFS
and HTM investment securities as of the dates indicated:
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities(1)
Non-U.S. sovereign, supranational and non-
U.S. agency
Other(2)
Total non-U.S. debt securities
Asset-backed securities:
Student loans(3)
Collateralized loan obligations(4)
Non-agency CMBS and RMBS(5)
Other
Total asset-backed securities
State and political subdivisions(6)
Other U.S. debt securities(7)
December 31, 2021
Gross
Unrealized
Gains
Losses
Amortized
Cost
Fair
Value
Amortized
Cost
December 31, 2020
Gross
Unrealized
Gains
Losses
Fair
Value
$
18,111 $
24 $
196 $
17,939 $
6,453 $
123 $
1 $
6,575
18,154
36,265
1,986
2,087
23,533
3,113
30,719
209
2,155
52
90
2,506
1,216
2,734
148
172
12
2
114
17
145
2
2
—
1
5
59
23
94
290
3
2
100
32
137
—
2
—
—
2
3
13
18,208
36,147
1,995
2,087
23,547
3,098
30,727
211
2,155
52
91
2,509
1,272
2,744
13,891
20,344
1,994
2,294
21,769
3,297
29,354
313
2,969
76
90
3,448
1,470
3,371
421
544
4
1
321
58
384
2
3
2
—
7
80
72
7
8
2
4
3
—
9
1
6
—
—
7
2
—
14,305
20,880
1,996
2,291
22,087
3,355
29,729
314
2,966
78
90
3,448
1,548
3,443
Total available-for-sale securities
$
73,440 $ 404 $
445 $
73,399 $
57,987 $ 1,087 $
26 $ 59,048
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Mortgage-backed securities
Non-U.S. sovereign, supranational and non-
U.S. agency
Total non-U.S. debt securities
Asset-backed securities:
Student loans(3)
Non-agency CMBS and RMBS(8)
Total asset-backed securities
Total(9)
Held-to-maturity under money market mutual fund
liquidity facility(9)
Total held-to-maturity securities
$
2,170 $
10 $ — $
2,180 $
6,057 $
83 $ — $
6,140
33,481
35,651
362
372
578
578
33,265
35,445
36,901
955
42,958
1,038
—
1,564
1,564
4,908
307
5,215
—
—
—
48
22
70
—
9
9
14
—
14
—
1,555
1,555
4,942
329
5,271
303
342
645
4,774
554
5,328
68
—
68
33
30 1
63
42,430
442
601
42,271
48,931
1,169
—
—
—
—
3,300
4
67
67
4
—
4
25
1
26
97
—
37,789
43,929
367
342
709
4,782
583
5,365
50,003
3,304
$
42,430 $ 442 $
601 $
42,271 $
52,231 $ 1,173 $
97 $ 53,307
(1) As of December 31, 2021 and December 31, 2020, the fair value includes non-U.S. collateralized loan obligations of $0.83 billion and $0.96 billion, respectively.
(2) As of December 31, 2021 and December 31, 2020, the fair value includes non-U.S. corporate bonds of $1.53 billion and $1.88 billion, respectively,
(3) Primarily comprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(4) Excludes collateralized loan obligations in loan form. Refer to Note 4 for additional information.
(5) Consists entirely of non-agency CMBS as of both December 31, 2021 and December 31, 2020.
(6) As of December 31, 2021 and December 31, 2020, the fair value of state and political subdivisions includes securities in trusts of $0.52 billion and $0.70 billion, respectively.
Additional information about these trusts is provided in Note 14.
(7) As of December 31, 2021 and December 31, 2020, the fair value of U.S. corporate bonds was $2.44 billion and $3.44 billion, respectively.
(8) As of December 31, 2021 and December 31, 2020, the total amortized cost included $292 million and $464 million, respectively, of non-agency CMBS and $14 million and
$90 million of non-agency RMBS, respectively.
(9) As of December 31, 2021 and 2020, we recognized an allowance for credit losses on all HTM securities of $0 million and $3 million, respectively, inclusive of $0 million and
$1 million, respectively, related to HTM securities purchased under the money market mutual fund liquidity facility.
State Street Corporation | 145
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate investment securities with carrying values of approximately $80.81 billion and $70.57 billion as of
December 31, 2021 and December 31, 2020, respectively, were designated as pledged for public and trust
deposits, short-term borrowings and for other purposes as provided by law.
In 2021, 2020 and 2019, $1.25 billion, $8.60 billion and $3.98 million, respectively, of agency MBS, previously
classified as AFS, were transferred to HTM. These transfers reflect our intent to hold these securities until their
maturity. These securities were transferred at fair value, which included a net unrealized gain of $12 million , $120
million and $49 million as of December 31, 2021, 2020 and 2019, respectively, within accumulated other
comprehensive loss which will be accreted into interest income over the remaining life of the transferred security
(ranging from approximately 1 to 36 years).
In 2021, we transferred $438 million of HTM debt securities that referenced LIBOR and other discontinued
reference rates to AFS. $378 million of these securities were sold resulting in a pre-tax gain of $58 million.
In 2021, 2020 and 2019, proceeds from sales of AFS securities was approximately $12.82 billion, $2.65 billion
and $5.64 billion, respectively, primarily driven by MBS, ABS, municipal bonds and supranationals, resulting in a
pre-tax gain of approximately $57 million in 2021, a pre-tax gain of approximately $4 million in 2020 and a pre-tax
loss less than $1 million in 2019.
The following tables present the aggregate fair values of AFS investment securities that have been in a
continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized
loss position for 12 months or longer, as of the dates indicated:
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Non-U.S. sovereign, supranational and non-U.S. agency
Other
Total non-U.S. debt securities
Asset-backed securities:
Collateralized loan obligations
Total asset-backed securities
State and political subdivisions
Other U.S. debt securities
Total
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Asset-backed securities:
Student loans
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Non-U.S. sovereign, supranational and non-U.S. agency
Other
Total non-U.S. debt securities
State and political subdivisions
Other U.S. debt securities
Total
As of December 31, 2021
Less than 12 months
12 months or longer
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
194 $ 1,624 $
2 $ 16,373 $
$
14,749 $
10,417
25,166
577
1,021
10,406
1,570
13,574
1,268
1,268
10
1,214
80
274
369
1,993
3
2
97
31
133
30
127
63
19
239
2
2
—
13
—
—
45
—
$
41,232 $
422 $ 2,277 $
14
16
—
—
3
1
4
10,786
27,159
607
1,148
10,469
1,589
13,813
—
—
3
—
23 $ 43,509 $
1,268
1,268
55
1,214
196
94
290
3
2
100
32
137
2
2
3
13
445
As of December 31, 2020
Less than 12 months
12 months or longer
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
$
1,636 $
1,394
3,030
1 $
7
8
— $
63
63
— $
—
—
1,636 $
1,457
3,093
31
1,498
1,529
600
1,015
489
715
2,819
95
17
7,490 $
$
—
4
4
1
3
—
3
7
—
—
19 $
197
369
566
120
446
—
80
646
76
—
1,351 $
1
2
3
228
1,867
2,095
1
1
—
—
2
2
—
7 $
720
1,461
489
795
3,465
171
17
8,841 $
1
7
8
1
6
7
2
4
—
3
9
2
—
26
State Street Corporation | 146
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost and the fair value of contractual maturities of debt investment
securities as of December 31, 2021. The maturities of certain ABS, MBS and collateralized mortgage obligations are
based on expected principal payments. Actual maturities may differ from these expected maturities since certain
borrowers have the right to prepay obligations with or without prepayment penalties.
(In millions)
Under 1 Year
1 to 5 Years
6 to 10 Years
Over 10 Years
Total
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
As of December 31, 2021
Available-for-sale:
U.S. Treasury and
federal agencies:
Direct obligations
$
1,977 $
1,976 $
15,090 $ 14,912 $
1,044 $
1,051 $
— $
— $
18,111 $ 17,939
Mortgage-backed
securities
Total U.S. Treasury and
federal agencies
Non-U.S. debt
securities:
Mortgage-backed
securities
Asset-backed
securities
Non-U.S. sovereign,
supranational and
non-U.S. agency
Other
Total non-U.S. debt
securities
Asset-backed securities:
Student loans
Collateralized loan
obligations
Non-agency CMBS
and RMBS
Other
Total asset-backed
securities
State and political
subdivisions
Other U.S. debt
securities
71
73
839
846
7,619
7,620
9,625
9,669
18,154
18,208
2,048
2,049
15,929
15,758
8,663
8,671
9,625
9,669
36,265
36,147
164
303
164
302
526
527
1,040
1,041
33
454
33
454
1,263
1,271
1,986
1,995
290
290
2,087
2,087
4,472
823
4,480
826
16,329
1,954
16,336
1,943
2,717
279
2,717
275
15
57
14
54
23,533
3,113
23,547
3,098
5,762
5,772
19,849
19,847
3,483
3,479
1,625
1,629
30,719
30,727
113
147
—
—
260
177
998
115
147
—
—
262
180
—
482
—
—
482
491
—
—
483
512
1,002
1,696
1,699
—
—
—
483
1,085
1,084
—
90
—
91
96
441
52
—
96
441
52
—
209
211
2,155
2,155
52
90
52
91
1,175
1,175
589
589
2,506
2,509
466
40
499
43
82
—
81
—
1,216
1,272
2,734
2,744
Total
$
9,245 $
9,265 $
38,447 $ 38,299 $
13,827 $ 13,867 $
11,921 $ 11,968 $
73,440 $ 73,399
Held-to-maturity:
U.S. Treasury and
federal agencies:
Direct obligations
$
2,150 $
2,159 $
3 $
3 $
1 $
1 $
16 $
17 $
2,170 $
2,180
Mortgage-backed
securities
Total U.S. Treasury and
federal agencies
Non-U.S. debt
securities:
Non-U.S. sovereign,
supranational and
non-U.S. agency
Total non-U.S. debt
securities
Asset-backed securities:
Student loans
Non-agency CMBS
and RMBS
Total asset-backed
securities
148
151
2,298
2,310
393
396
399
402
4,651
4,591
28,289
28,124
33,481
33,265
4,652
4,592
28,305
28,141
35,651
35,445
345
345
341
87
428
345
345
335
95
430
1,218
1,209
1,218
1,209
48
144
192
47
144
191
1
1
971
—
971
1
1
—
—
—
—
1,564
1,555
1,564
1,555
984
3,548
3,576
4,908
4,942
—
76
90
307
329
984
3,624
3,666
5,215
5,271
Total
$
3,071 $
3,085 $
1,806 $
1,802 $
5,624 $
5,577 $
31,929 $ 31,807 $
42,430 $ 42,271
State Street Corporation | 147
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest income related to debt securities is
recognized in our consolidated statement of income
using the effective interest method, or on a basis
approximating a
the
contractual or estimated life of the security. The level
rate of return considers any non-refundable fees or
costs, as well as purchase premiums or discounts,
adjusted as prepayments occur,
in
amortization or accretion, accordingly.
level rate of return over
resulting
Allowance for Credit Losses on Debt Securities
and Impairment of AFS Securities
We conduct quarterly reviews of HTM and AFS
securities on a collective (pool) basis when similar
risk characteristics exist to determine whether an
allowance for credit losses should be recognized.
HTM securities are evaluated for expected credit loss
utilizing a probability of default methodology, or
discounted cash
the
amortized cost of the investment security excluding
accrued interest.
flows assessed against
We monitor the credit quality of the HTM
investment securities using a variety of methods,
including both external and internal credit ratings.
With
respect
to certain classes of debt
securities, primarily U.S. Treasuries and agency
securities (mainly issued by U.S. Government entities
and agencies, as well as Group of Seven
sovereigns), we consider the history of credit losses,
current conditions and reasonable and supportable
forecasts, which may indicate that the expectation
that nonpayment of the amortized cost basis is or
continues to be zero. Therefore, for those securities,
we do not record expected credit losses.
Our allowance for credit losses on our HTM
securities was approximately nil and $3 million as of
December 31, 2021 and 2020, respectively, inclusive
of nil and $1 million, respectively related to HTM
securities purchased under the money market mutual
fund liquidity facility.
We have elected to not record an allowance on
accrued interest for HTM securities. Accrued interest
on these securities is reversed against interest
income when payment on a security is delinquent for
greater than 90 days from the date of payment.
An AFS security is impaired when the current
fair value of an individual security is below its
amortized cost basis. An allowance for credit losses
on impaired AFS securities is recorded when the
present value of expected future cash flows of the
investment security is less than its amortized cost
basis, limited to the amount by which the security’s
amortized cost basis exceeds
fair value.
Investment securities will be written down to fair value
through the consolidated statement of income when
management intends to sell (or may be required to
sell) the securities before they recover in value.
the
Our
review of
impaired AFS
investment
securities generally includes:
•
•
•
•
•
•
•
the identification and evaluation of securities
that have indications of potential impairment,
such as issuer-specific concerns, including
deteriorating
or
bankruptcy;
condition
financial
the analysis of expected future cash flows of
securities, based on quantitative and
qualitative factors;
the analysis of the collectability of those
future cash flows, including information about
past
and
conditions,
reasonable and supportable forecasts;
events,
current
the analysis of the underlying collateral for
MBS and ABS;
the analysis of individual impaired securities,
including the anticipated recovery period and
the magnitude of the overall price decline;
evaluation of factors or triggers that could
cause individual securities to be deemed
impaired and those that would not support
impairment; and
documentation of
analyses.
the
results of
these
Our allowance for credit losses on our AFS
securities was approximately $2 million and nil as of
December 31, 2021 and 2020, respectively,
Substantially all of our investment securities
portfolio is composed of debt securities. A critical
component of our assessment of impairment of these
debt securities is the identification of credit-impaired
securities for which management does not expect to
receive cash flows sufficient to recover the entire
amortized cost basis of the security.
Debt securities that are not deemed to be credit
impaired are subject
to additional management
analysis to assess whether management intends to
sell, or, more likely than not, would be required to sell,
the security before the expected recovery of its
amortized cost basis.
As of December 31, 2021, 99% of our HTM and
AFS investment portfolio is publicly rated investment
grade.
Prior to the adoption of ASC 326 on January 1,
2020, we assessed our AFS and HTM securities for
impairment under an OTTI model. Under this model
impairment of AFS and HTM debt securities was
recorded in our consolidated statement of income
when management intended to sell (or may be
required to sell) the securities before they recovered
in value, or when management expected the present
value of cash flows expected to be collected from the
securities to be less than the amortized cost of the
impaired security (a credit loss).
State Street Corporation | 148
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
income,
in other
We recorded less than $1 million of OTTI,
included
the year ended
December 31, 2019, which resulted from adverse
changes in the timing of expected future cash flows
from non-U.S. mortgage- and asset backed
securities.
in
After a review of the investment portfolio, taking
into consideration then-current economic conditions,
adverse situations that might affect our ability to fully
collect principal and interest, the timing of future
payments, the credit quality and performance of the
collateral underlying MBS and ABS and other relevant
factors, management considered
the aggregate
decline in fair value of the investment securities
portfolio and the resulting gross pre-tax unrealized
losses of $1,046 million and $123 million related to
954 and 503 securities as of December 31, 2021 and
December 31, 2020, respectively, to be temporary,
and not the result of any material changes in the
credit characteristics of the securities.
The
following
table presents our recorded
investment in loans, by segment, as of the dates
indicated:
(In millions)
Domestic(1):
Commercial and financial:
Fund Finance(2)
Leveraged loans
Overdrafts
Other(3)
Commercial real estate
Total domestic
Foreign(1):
Commercial and financial:
Fund Finance(2)
Leveraged loans
Overdrafts
Other(3)
Total foreign
Total loans(2)
December 31,
2021
December 31,
2020
$
12,396 $
11,531
3,106
1,796
2,262
2,554
2,923
1,894
2,688
2,096
22,114
21,132
7,778
1,328
1,312
—
10,418
32,532
(87)
4,432
1,242
1,088
31
6,793
27,925
(122)
Note 4. Loans and Allowance for Credit Losses
Allowance for credit losses
Loans are generally recorded at their principal
amount outstanding, net of the allowance for credit
losses, unearned income, and any net unamortized
deferred
that are
classified as held-for-sale are measured at lower of
cost or fair value on an individual basis.
loan origination
fees. Loans
Interest income related to loans is recognized in
our consolidated statement of income using the
interest method, or on a basis approximating a level
rate of return over the term of the loan. Fees received
for providing loan commitments and letters of credit
that we anticipate will result in loans typically are
deferred and amortized to interest income over the
term of the related loan, beginning with the initial
borrowing. Fees on commitments and letters of credit
are amortized to software and processing fees over
the commitment period when funding is not known or
expected.
Loans, net of allowance
$
32,445 $
27,803
loans
to real money
loans, $6,397 million
(1) Domestic and foreign categorization is based on the borrower’s country of
domicile.
(2) Fund finance loans include primarily $9,147 million private equity capital call
finance
funds, $2,913 million
collateralized loan obligations in loan form and $1,387 million loans to business
development companies as of December 31, 2021, compared to $8,380 million
private equity capital call finance loans, $6,391 million loans to real money funds,
and $821 million loans to business development companies as of December 31,
2020.
(3) Includes $1,784 million securities finance loans, $455 million loans to
municipalities and $23 million other loans as of December 31, 2021 and
$1,911 million securities finance loans, $754 million loans to municipalities and
$54 million other loans as of December 31, 2020.
We segregate our loans into two segments:
commercial and financial loans and commercial real
estate loans. We further classify commercial and
financial loans as fund finance loans, leveraged
loans, overdrafts and other loans. Fund finance loans
are composed of revolving credit lines providing
liquidity and leverage to mutual fund and private
equity fund clients, as well as collateralized loan
obligations in loan form. These classifications reflect
their risk characteristics, their initial measurement
attributes and the methods we use to monitor and
assess credit risk.
Certain loans are pledged as collateral for
access to the Federal Reserve's discount window. As
of December 31, 2021 and December 31, 2020, the
loans pledged as collateral totaled $10.80 billion and
$8.07 billion, respectively.
State Street Corporation | 149
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the accrual of
We generally place loans on non-accrual status
once principal or interest payments are 90 days
contractually past due, or earlier if management
determines that full collection is not probable. Loans
90 days past due, but considered both well-secured
and in the process of collection, may be excluded
from non-accrual status. When we place a loan on
non-accrual status,
is
discontinued and previously recorded but unpaid
interest is reversed and generally charged against
interest income. For loans on non-accrual status,
income is recognized on a cash basis after recovery
of principal, if and when interest payments are
received. Loans may be removed from non-accrual
status when repayment is reasonably assured and
performance under the terms of the loan has been
demonstrated. As of both December 31, 2021 and
December 31, 2020, we had no loans on non-accrual
status.
interest
We purchased $2,913 million of collateralized
form, which were all
loan obligations
investment grade as of December 31, 2021.
loan
in
We sold $181 million of leveraged loans in 2021,
of which $8 million remained unsettled and was held
for sale as of December 31, 2021. We recorded a
charge-off against the allowance for these loans prior
to the sale of these loans of $2 million in 2021.
In certain circumstances, we restructure troubled
loans by granting concessions
to borrowers
experiencing financial difficulty. Once restructured,
the loans are generally considered impaired until their
maturity, regardless of whether the borrowers perform
under the modified terms of the loans. There were no
loans modified in troubled debt restructurings during
the years ended December 31, 2021 and 2020.
Allowance for Credit Losses
We recognize an allowance for credit losses in
accordance with ASC 326 for financial assets held at
amortized cost and off-balance sheet commitments.
Prior to 2020, we recognized an allowance for loan
losses under an incurred loss model. The allowance
for credit losses is reviewed on a regular basis, and
any provision for credit losses is recorded to reflect
the amount necessary to maintain the allowance for
expected credit losses at a level which represents
what management does not expect to recover due to
expected credit losses. For additional discussion on
the allowance
investment
securities, please refer to Note 3.
for credit
losses
for
for credit
When the allowance is recorded, a provision for
credit loss expense is recognized in net income. The
allowance
financial assets
losses
(excluding investment securities, as discussed in
Note 3) represents the portion of the amortized cost
basis, including accrued interest for financial assets
held at amortized cost, which management does not
expect to recover due to expected credit losses and is
presented on the statement of condition as an offset
for
to the amortized cost basis. The accrued interest
balance is presented separately on the statement of
condition within accrued interest and fees receivable.
The allowance for off-balance sheet commitments is
presented within other liabilities. Loans are charged
off to the allowance for credit losses in the reporting
period in which either an event occurs that confirms
the existence of a loss on a loan, including a sale of a
loan below its carrying value, or a portion of a loan is
determined to be uncollectible.
The allowance
for credit
various methods,
losses may be
determined using
including
discounted cash flow methods, loss-rate methods,
probability-of-default methods, and other quantitative
or qualitative methods as determined by us. The
method used to estimate expected credit losses may
vary depending on the type of financial asset, our
ability to predict the timing of cash flows, and the
information available to us.
The allowance for credit losses as reported in
our consolidated statement of condition is adjusted by
provision for credit losses, which is reported in
earnings, and reduced by the charge-off of principal
amounts, net of recoveries.
We measure expected credit losses of financial
assets on a collective (pool) basis when similar risk
characteristic exist. Each reporting period, we assess
whether the assets in the pool continue to display
similar risk characteristics.
For a financial asset that does not share risk
characteristics with other assets, expected credit
losses are measured separately using one or more of
the methods noted above. As of December 31, 2021,
we had 9 loans for $232 million in the commercial and
financial segment that no longer met the similar risk
characteristics of their collective pool. We recorded
an allowance for credit losses of $11 million as of
December 31, 2021 on these loans.
When the asset is collateral dependent, which
means when the borrower is experiencing financial
difficulty and repayment is expected to be provided
substantially through the operation or sale of the
collateral, expected credit losses are measured as
the difference between the amortized cost basis of
the asset and the fair value of the collateral, adjusted
for the estimated costs to sell.
Determining
the appropriateness of
the
allowance is complex and requires judgment by
management about the effect of matters that are
inherently uncertain. In future periods, factors and
forecasts then prevailing may result in significant
changes in the allowance for credit losses in those
future periods.
We estimate credit losses over the contractual
life of
in
financial asset, while
prepayment activity, where supported by data, over a
factoring
the
State Street Corporation | 150
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
three year reasonable and supportable
forecast
period. We utilize a baseline, upside and downside
scenario which are applied based on a probability
weighting, in order to better reflect management’s
expectation of expected credit losses given existing
market conditions and the changes in the economic
environment. The multiple scenarios are based on a
three year horizon (or less depending on contractual
maturity) and then revert linearly over a two year
period to a ten-year historical average thereafter. The
term excludes expected extensions,
contractual
renewals and modifications, but includes prepayment
assumptions where applicable.
As part of our allowance methodology, we
establish qualitative reserves to address any risks
inherent in our portfolio that are not addressed
through our quantitative reserve assessment. These
factors may relate to, among other things, legislation
changes or new regulation, credit concentration, loan
markets, scenario weighting and overall model
limitations. The qualitative adjustments are applied to
our portfolio of
the
existing governance structure and are inherently
judgmental.
instruments under
financial
Credit Quality
for
Credit quality
financial assets held at
is continuously monitored by
amortized cost
management and is reflected within the allowance for
credit losses.
We use an internal risk-rating system to assess
our risk of credit loss for each loan. This risk-rating
process incorporates the use of risk-rating tools in
conjunction with management judgment. Qualitative
and quantitative inputs are captured in a systematic
manner, and following a formal review and approval
process, an internal credit rating based on our credit
scale is assigned.
When computing allowance levels, credit loss
that
assumptions are estimated using a model
categorizes asset pools based on
loss history,
delinquency status and other credit trends and risk
characteristics,
including current conditions and
reasonable and supportable forecasts about the
the
future. Determining
allowance is complex and requires judgment by
management about the effect of matters that are
inherently uncertain. In future periods evaluations of
the overall asset portfolio, in light of the factors and
forecasts then prevailing, may result in significant
changes in the allowance and credit loss expense in
those future periods.
the appropriateness of
Credit quality is assessed and monitored by
evaluating various attributes in order to enable the
earliest possible detection of any concerns with the
those
rating. The
customer’s credit
results of
evaluations are utilized in underwriting new loans and
transactions with counterparties and in our process
for estimation of expected credit losses.
flexibility and earnings strength,
In assessing the risk rating assigned to each
individual loan, among the factors considered are the
borrower's debt capacity, collateral coverage,
payment history and delinquency experience,
financial
the
expected amounts and source of repayment, the level
and nature of contingencies, if any, and the industry
and geography in which the borrower operates.
These factors are based on an evaluation of historical
and current
involve subjective
assessment and interpretation. Credit counterparties
are evaluated and risk-rated on an individual basis at
least annually. Management considers the ratings to
be current as of December 31, 2021.
information, and
Our internal risk rating methodology assigns risk
ratings to counterparties ranging from Investment
Grade, Speculative, Special Mention, Substandard,
Doubtful and Loss.
•
•
•
•
•
•
Investment Grade: Counterparties with strong
credit quality and low expected credit risk and
probability of default. Approximately 84% of
our loans were rated as investment grade as
of December 31, 2021 with external credit
ratings, or equivalent, of "BBB-" or better.
to
face
repay but
Speculative: Counterparties that have the
ability
significant
uncertainties, such as adverse business or
that could affect
financial circumstances
credit risk or economic downturns. Loans to
counterparties rated as speculative account
for approximately 15% of our loans as of
December 31, 2021, and are concentrated in
leveraged loans. Approximately 94% of those
leveraged
loans have an external credit
rating, or equivalent, of "BB" or "B" as of
December 31, 2021.
Special Mention: Counterparties with
potential weaknesses that, if uncorrected,
may result in deterioration of repayment
prospects.
Substandard: Counterparties with well-
defined
jeopardizes
repayment with the possibility we will sustain
some loss.
weakness
that
Doubtful: Counterparties with well-defined
weakness which make
or
liquidation in full highly questionable and
improbable.
collection
Loss: Counterparties which are uncollectible
or have little value.
State Street Corporation | 151
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present our recorded loans to counterparties by risk rating, as noted above, as of the
dates indicated:
December 31, 2021
(In millions)
Investment grade
Speculative
Special mention
Substandard
Total(1)(2)
December 31, 2020
(In millions)
Investment grade
Speculative
Special mention
Substandard
Doubtful
Total(1)
Commercial and Financial
Commercial Real Estate
Total Loans
$
$
24,974 $
2,222 $
4,714
118
164
270
62
—
29,970 $
2,554 $
Commercial and Financial
Commercial Real Estate
Total Loans
$
$
20,859 $
4,852
67
34
17
1,724 $
372
—
—
—
25,829 $
2,096 $
27,925
27,196
4,984
180
164
32,524
22,583
5,224
67
34
17
(1) Loans Include $3,108 million and $2,982 million of overdrafts as of December 31, 2021 and December 31, 2020, respectively. Overdrafts are short-term in nature and do not
present a significant credit risk to us. As of December 31, 2021, $2,944 million overdrafts were investment grade and $164 million overdrafts were speculative.
(2) Total does not include $8 million of loans classified as held-for-sale as of December 31, 2021.
Financial assets held at amortized cost that are not loans are disaggregated based on product type. This
includes our fees receivable balance, which have had no history of credit losses, and are evaluated collectively as a
pool.
Securities purchased under a resale agreement and securities-financing within our principal business utilize
the collateral maintenance provisions included within ASC 326. An allowance for credit losses is recognized for any
remaining exposure based on counterparty type.
The allowance for credit losses for off-balance sheet credit exposures, recorded in accrued expenses and
other liabilities in our consolidated statement of condition, represents management’s estimate of credit losses
primarily in outstanding letters and lines of credit and other credit-enhancement facilities provided to our clients and
outstanding as of the balance sheet date. The allowance is evaluated quarterly by management. Factors considered
in evaluating the appropriate level of this allowance are similar to those considered with respect to the allowance for
credit losses on financial assets held at amortized cost. Provisions to maintain the allowance at a level considered
by us to be appropriate to absorb estimated credit losses in outstanding facilities are recorded in the provision for
credit losses in our consolidated statement of income.
The following table presents the amortized cost basis, by year of origination and credit quality indicator as of
December 31, 2021. For origination years before the fifth annual period, we present the aggregate amortized cost
basis of loans. For purchased loans, the date of issuance is used to determine the year of origination, not the date
of acquisition. For modified, extended or renewed lending arrangements, we evaluate whether a credit event has
occurred which would consider the loan to be a new arrangement.
State Street Corporation | 152
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2021
2020
2019
2018
2017
Prior
Revolving Loans
Total(1)
$
1,988 $
59 $
347 $
2 $
37 $
— $
13,591 $ 16,024
1,096
—
—
351
—
5
706
70
71
425
29
56
350
19
8
7
—
—
343
—
—
3,278
118
140
(In millions)
Domestic loans:
Commercial and financial:
Risk Rating:
Investment grade
Speculative
Special mention
Substandard
Total commercial and financing
$
3,084 $
415 $
1,194 $
512 $
414 $
7 $
13,934 $ 19,560
Commercial real estate:
Risk Rating:
Investment grade
Speculative
Special mention
$
580 $
129 $
383 $
657 $
276 $
197 $
— $
2,222
24
—
49
—
149
22
20
40
—
—
28
—
—
—
270
62
Total commercial real estate
$
604 $
178 $
554 $
717 $
276 $
225 $
— $
2,554
Non-U.S. loans:
Commercial and financial:
Risk Rating:
Investment grade
Speculative
Substandard
Total commercial and financing
Total loans(2)
$
$
$
4,087 $
— $
— $
— $
— $
— $
4,863 $
8,950
561
—
201
264
204
24
120
31
55
1,436
24
4,648 $
201 $
264 $
228 $
120 $
31 $
4,918 $ 10,410
8,336 $
794 $
2,012 $
1,457 $
810 $
263 $
18,852 $ 32,524
(1) Any reserve associated with accrued interest is not material. As of December 31, 2021, accrued interest receivable of $86 million included in the amortized cost basis of loans
has been excluded from the amortized cost basis within this table.
(2) Total does not include $8 million of loans classified as held-for-sale as of December 31, 2021.
The following table presents the amortized cost basis, by year of origination and credit quality indicator as of
December 31, 2020:
(In millions)
Domestic loans:
Commercial and financial:
Risk Rating:
Investment grade
Speculative
Special mention
Substandard
2020
2019
2018
2017
2016
Prior
Revolving Loans
Total(1)
$
1,894 $
388 $
4 $
167 $
200 $
— $
12,836 $ 15,489
432
—
—
942
28
5
822
—
—
610
39
—
43
—
29
—
—
—
597
—
—
3,446
67
34
Total commercial and financing
$
2,326 $
1,363 $
826 $
816 $
272 $
— $
13,433 $ 19,036
Commercial real estate:
Risk Rating:
Investment grade
Speculative
Total commercial real estate
Non-U.S. loans:
Commercial and financial:
Risk Rating:
Investment grade
Speculative
Doubtful
Total commercial and financing
Total loans
$
$
$
$
178 $
383 $
688 $
277 $
197 $
— $
120
166
58
—
—
29
298 $
549 $
746 $
277 $
197 $
29 $
— $
1,723
—
373
— $
2,096
$
1,028 $
— $
— $
— $
— $
— $
4,343 $
5,371
283
—
401
—
346
—
162
17
26
—
66
—
121
—
1,405
17
1,311 $
401 $
346 $
179 $
26 $
66 $
4,464 $
6,793
3,935 $
2,313 $
1,918 $
1,272 $
495 $
95 $
17,897 $ 27,925
(1) Any reserve associated with accrued interest is not material. As of December 31, 2020, accrued interest receivable of $72 million included in the amortized cost basis of loans
has been excluded from the amortized cost basis within this table.
State Street Corporation | 153
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the activity in the allowance for credit losses by portfolio and class for the years
ended December 31, 2021 and 2020:
Commercial and Financial
Year End December 31, 2021
Leveraged
Loans
Other
Loans(1)
Commercial
Real Estate
Available-for-
sale
securities
Held-to-
Maturity
Securities
Off-Balance
Sheet
Commitments
All Other
Total
$
97 $
17 $
8 $
— $
3 $
22 $
1 $
(2)
(29)
(5)
—
(6)
1
—
6
—
—
2
—
—
(3)
—
—
(2)
(1)
—
(1)
—
$
61 $
12 $
14 $
2 $
— $
19 $
— $
(In millions)
Allowance for credit
losses:
Beginning balance
Charge-offs(2)
Provision
FX translation
Ending balance
(1) Includes $11 million allowance for credit losses on Fund Finance loans and $1 million on other loans.
(2) Related to the sale of leveraged loans in 2021.
Commercial and Financial
Year Ended December 31, 2020
Leveraged
Loans
Other
Loans(1)
Commercial
Real Estate
Held-to-Maturity
Securities
Off-Balance Sheet
Commitments
All Other
Total
(In millions)
Allowance for credit losses:
Beginning balance
$
61 $
10 $
2 $
— $
19 $
1 $
Charge-offs(2)
Provision
FX translation
Ending balance
(41)
70
7
—
7
—
—
6
—
—
3
—
—
2
1
—
—
—
$
97 $
17 $
8 $
3 $
22 $
1 $
148
(2)
(33)
(5)
108
93
(41)
88
8
148
(1) Includes $13 million allowance for credit losses on Fund Finance loans and $4 million on other loans.
(2) Related to the sale of leveraged loans in 2020.
Loans are reviewed on a regular basis, and any provisions for credit losses that are recorded reflect
management's estimate of the amount necessary to maintain the allowance for loan losses at a level considered
appropriate to absorb expected credit losses in the loan portfolio. We recorded a $33 million release of credit
reserves in 2021, which reflected observed and expected improvements in both credit quality and economic outlook.
Allowance estimates remain subject to continued model and economic uncertainty and management may use
qualitative adjustments in the allowance estimates. If future data and forecasts deviate relative to the forecasts
utilized to determine our allowance for credit losses as of December 31, 2021, or if credit risk migration is higher or
lower than forecasted for reasons independent of the economic forecast, our allowance for credit losses will also
change.
Note 5. Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the net tangible and other
intangible assets acquired. Other intangible assets represent purchased long-lived intangible assets, primarily client
relationships, that can be distinguished from goodwill because of contractual rights or because the asset can be
exchanged on its own or in combination with a related contract, asset or liability. Goodwill is not amortized, but is
subject to at least annual evaluation for impairment. Other intangible assets, which are subject to evaluation for
impairment, are mainly related to client relationships, which are amortized on a straight-line basis over periods
ranging from five to twenty years, technology assets, which are amortized on a straight-line basis over periods
ranging from three to ten years, and core deposit intangible assets, which are amortized on a straight-line basis
over periods ranging from sixteen to twenty-two years, with such amortization recorded in other expenses in our
consolidated statement of income.
Impairment of goodwill is deemed to exist if the carrying value of a reporting unit, including its allocation of
goodwill and other intangible assets, exceeds its estimated fair value. Impairment of other intangible assets is
deemed to exist if the balance of the other intangible asset exceeds the cumulative expected undiscounted net cash
inflows related to the asset over its remaining estimated useful life. If these reviews determine that goodwill or other
intangible assets are impaired, the value of the goodwill or the other intangible asset is written down through a
charge to other expenses in our consolidated statement of income. There were no impairments to goodwill or other
intangible assets in 2021, 2020 and 2019.
State Street Corporation | 154
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the gross carrying
amount, accumulated amortization and net carrying
amount of other intangible assets by type as of the
dates indicated:
December 31, 2021
(In millions)
Other intangible
assets:
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Client relationships
$
2,786 $
(1,497) $
1,289
Technology
Core deposits
Other
Total
December 31, 2020
(In millions)
Other intangible
assets:
403
696
96
(142)
(451)
(75)
261
245
21
$
3,981 $
(2,165) $
1,816
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Client relationships
$
2,704 $
(1,450) $
1,254
Technology
Core deposits
Other
Total
393
690
107
(113)
(425)
(79)
280
265
28
$
3,894 $
(2,067) $
1,827
Amortization expense related to other intangible
assets was $245 million, $234 million and $236
million in 2021, 2020 and 2019, respectively.
Expected future amortization expense for other
intangible assets recorded as of December 31, 2021
is as follows:
(In millions)
Future Amortization
Years Ended December 31,
2022
2023
2024
2025
2026
$
248
246
239
214
205
The following table presents changes in the
the periods
carrying amount of goodwill during
indicated:
(In millions)
Goodwill:
Investment
Servicing(1)
Investment
Management
Total
Ending balance
December 31, 2019 $
Foreign currency
translation
Ending balance
December 31, 2020
Acquisitions(2)
Divestitures(3)
Foreign currency
translation
Ending balance
December 31, 2021 $
7,289 $
267 $
7,556
124
7,413
66
(17)
(108)
3
270
—
—
127
7,683
66
(17)
(3)
(111)
7,354 $
267 $
7,621
(1) Investment Servicing includes our acquisition of CRD.
(2) Investment Servicing includes our acquisitions of the depositary bank and fund
administrator activities of Fideuram Bank Luxembourg, a subsidiary of Intesa
Sanpaolo, in the first quarter of 2021, with a total purchase price of approximately
EUR 220 million or approximately $258 million, and our acquisition of Mercatus,
Inc. in the third quarter of 2021, with a total purchase price of approximately
$88 million. We accounted for these acquisitions as business combinations and, in
accordance with ASC Topic 805, Business Combinations, we have recorded assets
acquired and liabilities assumed at their respective fair values as of the acquisition
date.
(3) In the second quarter of 2021, we sold a majority share of our WMS business.
The following table presents changes in the net
carrying amount of other intangible assets during the
periods indicated:
Investment
Servicing(1)
Investment
Management
Total
(In millions)
Other intangible
assets:
Ending balance
December 31, 2019 $
Amortization
Foreign currency
translation
Ending balance
December 31, 2020
Acquisitions(2)
Amortization
Foreign currency
translation
Ending balance
December 31, 2021 $
1,908 $
(206)
122 $
(28)
31
1,733
264
(221)
(30)
—
94
—
(24)
—
2,030
(234)
31
1,827
264
(245)
(30)
1,746 $
70 $
1,816
(1) Investment Servicing includes our acquisition of CRD.
(2) Investment Servicing includes our acquisitions of the depositary bank and fund
administrator activities of Fideuram Bank Luxembourg, a subsidiary of Intesa
Sanpaolo, in the first quarter of 2021, with a total purchase price of approximately
EUR 220 million or approximately $258 million, and our acquisition of Mercatus,
Inc. in the third quarter of 2021, with a total purchase price of approximately
$88 million. We accounted for these acquisitions as business combinations and, in
accordance with ASC Topic 805, Business Combinations, we have recorded assets
acquired and liabilities assumed at their respective fair values as of the acquisition
date.
State Street Corporation | 155
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Other Assets
The following table presents the components of other assets as of the dates indicated:
(In millions)
Securities borrowed(1)
Derivative instruments, net
Bank-owned life insurance
Investments in joint ventures and other unconsolidated entities
Collateral, net
Prepaid expenses
Right-of-use assets
Income taxes receivable
Deferred tax assets, net of valuation allowance(2)
Accounts receivable
Receivable for securities settlement
Deposits with clearing organizations
Other(3)
Total
December 31, 2021
December 31, 2020
$
22,300 $
4,108
3,554
3,162
1,011
612
542
317
254
236
213
62
$
1,244
37,615 $
18,330
5,804
3,479
3,095
2,616
383
720
367
233
379
117
58
929
36,510
(1) Refer to Note 11, for further information on the impact of collateral on our financial statement presentation of securities borrowing and securities lending transactions.
(2) Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.
(3) Includes advances of $544 million and $460 million as of December 31, 2021 and December 31, 2020, respectively.
Note 7. Deposits
We had $1.31 billion and $1.68 billion of time deposits outstanding as of December 31, 2021 and December
31, 2020, respectively, all of which were non-US time deposits. As of December 31, 2021 and December 31, 2020,
all time deposits were in uninsured accounts not subject to any country specific deposit insurance limits. As of
December 31, 2021, all time deposits are scheduled to mature in the next three months. Demand deposit overdrafts
of $3.11 billion and $2.98 billion were included as loan balances at December 31, 2021 and 2020, respectively.
Note 8. Short-Term Borrowings
Our short-term borrowings include securities sold under repurchase agreements, short-term borrowings
associated with our tax-exempt investment program (more fully described in Note 14) and other short-term
borrowings, including those related to the money market liquidity facility.
Collectively, short-term borrowings had weighted-average interest rates of 0.31% and 0.93% in 2021 and 2020,
respectively.
The following table presents information with respect to the amounts outstanding and weighted-average
interest rates of the primary components of our short-term borrowings as of and for the years ended December 31:
(Dollars in millions)
Securities Sold Under
Repurchase Agreements
Tax-Exempt
Investment Program
2021
2020
2019
2021
2020
2019
2021
Other
2020
2019
Balance as of December 31
$ 1,575
$ 3,413
$ 1,102
$ —
$ 616
$ 823
$ —
$ 3,302
$ —
Maximum outstanding as of
any month-end
Average outstanding during
the year
Weighted-average interest
rate as of year-end
Weighted-average interest
rate during the year
1,575
5,373
4,125
616
823
931
—
25,665
667
2,615
1,616
523
771
898
315
8,251
—
3
.00 %
.00 %
.00 %
.00 %
.23 %
1.75 %
.00 %
1.35 %
.00 %
(.00)
.14
1.90
.31
.78
1.51
.00
1.23
.01
Obligations to repurchase securities sold are recorded as a liability in our consolidated statement of condition.
Applicable securities with a fair value of $1.23 billion underlying the repurchase agreements remained in our
investment securities portfolio as of December 31, 2021.
State Street Corporation | 156
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information about these securities and the carrying value of the related
repurchase agreements, including accrued interest, as of December 31, 2021.
Securities Sold
Amortized
Cost
Fair Value
Repurchase
Agreements(1)
Amortized
Cost
$
1,226 $
1,227 $
1,575
(In millions)
Overnight maturity
(1) Collateralized by investment securities.
We maintain an agreement with a clearing organization that enables us to net securities purchased under
resale agreements and sold under repurchase agreements with counterparties that are also members of the
clearing organization when specific netting criteria are met. As a result of this netting, the average balances of
securities purchased under resale agreements and securities sold under repurchase agreements were reduced by
$62.15 billion in 2021 compared to the $100.45 billion reduction in 2020. The decrease in average balance sheet
netting, in 2021 compared to 2020, is primarily due to lower FICC repo volumes and lower short-term interest rates.
State Street Bank currently maintains a line of credit of CAD 1.40 billion, or approximately $1.11 billion, as of
December 31, 2021, to support its Canadian securities processing operations. The line of credit has no stated
termination date and is cancellable by either party with prior notice. As of December 31, 2021 and 2020, there was
no balance outstanding on this line of credit.
Note 9. Long-Term Debt
(Dollars in millions)
As of December 31,
Issuance Date
Maturity Date
Coupon Rate
Seniority
Interest Due Dates
2021
2020
Parent Company and Non-Banking Subsidiary Issuances
August 18, 2015
August 18, 2025
November 19, 2013
November 20, 2023
December 15, 2014
May 15, 2013
December 16, 2024
May 15, 2023(2)
3.55 %
3.7 %
3.3 %
3.1 %
Senior notes
Senior notes
Senior notes
Subordinated notes
November 1, 2019
November 1, 2025
2.354 % Fixed-to-floating rate senior notes
2/18; 8/18(1)
5/20; 11/20(1)
6/16; 12/16(1)
5/15; 11/15
5/1; 11/1(1)
March 3, 2021
March 3, 2031
2.2 %
Senior subordinated notes
3/3; 9/3
January 24, 2020
January 24, 2030
May 19, 2016
May 15, 2017
May 19, 2026
May 15, 2023
2.400 %
2.65 %
Senior notes
Senior notes
1/24, 7/24
5/19; 11/19(1)
2.653 % Fixed-to-floating rate senior notes
5/15; 11/15
March 30, 2020
March 30, 2023
2.825 % Fixed-to-floating rate senior notes
3/30, 9/30
December 3, 2018
December 3, 2029
4.141 % Fixed-to-floating rate senior notes
6/3; 12/3
November 1, 2019
November 1, 2034(2)
3.031 %
Fixed-to-floating rate senior
subordinated notes
December 3, 2018
December 3, 2024
3.776 % Fixed-to-floating rate senior notes
April 30, 2007
June 15, 2047
Floating-rate
Junior subordinated debentures
5/1; 11/1
6/3; 12/3(1)
3/15; 6/15; 9/15;
12/15
March 30, 2020
March 30, 2020
March 30, 2026
March 30, 2031
2.901 % Fixed-to-floating rate senior notes
3/30, 9/30
3.152 % Fixed-to-floating rate senior notes
3/30, 9/30
November 18, 2021
November 18, 2027
1.684 % Fixed-to-floating rate senior notes
5/18; 11/18
June 21, 1996
June 15, 2026(3)
7.35 %
Senior notes
6/15; 12/15
May 15, 1998
May 15, 2028
Floating-rate
Junior subordinated debentures
March 7, 2011
May 19, 2016
March 7, 2021
May 19, 2021
4.375 %
1.95 %
Senior notes
Senior notes
2/15; 5/15; 8/15;
11/15
3/7; 9/7(1)
5/19; 11/19(1)
$
1,370 $
1,043
1,040
1,022
1,019
843
803
779
754
749
583
541
523
499
498
498
497
150
100
—
—
1,413
1,070
1,075
1,039
1,047
—
821
796
766
748
594
546
538
499
498
497
—
150
100
752
753
Parent Company and Banking Subsidiaries
Long-term finance leases
Total long-term debt
164
103
$
13,475 $
13,805
(1) We have entered into interest rate swap agreements, recorded as fair value hedges, to modify our interest expense on these senior and subordinated notes from a fixed rate to a floating rate.
As of December 31, 2021 and 2020, the carrying value of long-term debt associated with these fair value hedges was $450 million and $691 million, respectively. Refer to Note 10 for additional
information about fair value hedges.
(2) The subordinated notes qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines.
(3) We may not redeem notes prior to their maturity.
State Street Corporation | 157
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parent Company and Banking Subsidiaries
related
As of December 31, 2021 and 2020, long-term
finance leases included $164 million and $103 million,
respectively,
technology
equipment leases entered into in 2021 and our One
Lincoln Street headquarters building and related
underground parking garage. Refer to Note 20 for
additional information.
information
to
Note 10. Derivative Financial Instruments
financial
instruments
We use derivative
to
support our clients' needs and to manage our interest
rate and currency risks. These financial instruments
consist of FX contracts such as forwards, futures and
options contracts; interest rate contracts such as
interest rate swaps (cross currency and single
currency) and futures; and other derivative contracts.
Derivative instruments used for risk management
purposes that are highly effective in offsetting the risk
being hedged are generally designated as hedging
instruments in hedge accounting relationships, while
others are economic hedges and not designated in
hedge accounting relationships. Derivatives in hedge
accounting relationships are disclosed according to
the type of hedge, such as, fair value, cash flow, or
net investment. Derivatives designated as hedging
instruments in hedge accounting relationships are
carried at fair value with change in fair value
recognized in the consolidated statement of income
or other
(OCI), as
appropriate. Derivatives not designated in hedge
accounting relationships include those derivatives
entered into to support client needs and derivatives
used to manage interest rate or foreign currency risk
associated with certain assets and liabilities. Such
derivatives are carried at fair value with changes in
fair value recognized in the consolidated statement of
income.
Derivatives Not Designated
Instruments
comprehensive
as Hedging
income
instruments,
We provide foreign exchange forward contracts
and options in support of our client needs, and also
act as a dealer in the currency markets. As part of our
trading activities, we assume positions in both the
foreign exchange and interest rate markets by buying
and selling cash instruments and using derivative
financial
foreign exchange
forward contracts, foreign exchange and interest rate
options, interest rate forward contracts, and interest
rate futures. The entire change in the fair value of our
non-hedging derivatives utilized
trading
activities are recorded in foreign exchange trading
services revenue, and the entire change in fair value
of our non-hedging derivatives utilized in our asset-
and-liability management activities are recorded in
net interest income.
including
in our
We enter into stable value wrap derivative
contracts with unaffiliated stable value funds that
allow a stable value fund to provide book value
coverage
its participants. These derivatives
contracts qualify as guarantees as described in Note
12.
to
We grant deferred cash awards to certain of our
employees as part of our employee
incentive
compensation plans. We account for these awards as
derivative financial instruments, as the underlying
referenced shares are not equity instruments of ours.
The fair value of these derivatives is referenced to the
value of units in State Street-sponsored investment
funds or funds sponsored by other unrelated entities.
fair value
We re-measure
quarterly, and
in
compensation and employee benefits expenses in
our consolidated statement of income.
Derivatives Designated as Hedging Instruments
these derivatives
the change
in value
record
to
formally assess and document
In connection with our asset-and-liability
management activities, we use derivative financial
instruments to manage our interest rate risk and
foreign currency risk for certain assets and liabilities.
At both the inception of the hedge and on an ongoing
basis, we
the
effectiveness of a derivative designated in a hedging
relationship and the likelihood that the derivative will
be an effective hedge
future periods. We
discontinue hedge accounting prospectively when we
determine that the derivative is no longer highly
effective in offsetting changes in fair value or cash
flows of the underlying risk being hedged, the
derivative expires,
is sold, or
management discontinues the hedge designation.
terminates or
in
liability or
includes
the asset or
The risk management objective of a highly
effective hedging strategy that qualifies for hedge
accounting must be formally documented. The hedge
the derivative hedging
documentation
forecasted
instrument,
transaction, type of risk being hedged and method for
assessing hedge effectiveness of
the derivative
prospectively and retrospectively. We use quantitative
methods
and
the
cumulative dollar offset method, comparing
change in the fair value of the derivative to the
change in fair value or the cash flows of the hedged
item. We may also utilize qualitative methods such as
matching critical terms and evaluation of any changes
in those critical terms. Effectiveness is assessed and
documented quarterly and if determined that the
derivative is not highly effective at hedging the
designated risk hedge accounting is discontinued.
regression
including
analysis
State Street Corporation | 158
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Hedges
Derivatives designated as fair value hedges are
utilized to mitigate the risk of changes in the fair
values of recognized assets and liabilities, including
long-term debt and AFS securities. We use interest
rate contracts in this manner to manage our exposure
to changes in the fair value of hedged items caused
by changes in interest rates.
in
the hedged risk are recognized
Changes in the fair value of the derivative and
changes in fair value of the hedged item due to
in
changes
earnings in the same line item. If a hedge is
item was not
terminated, but
the hedged
derecognized, all remaining adjustments
the
carrying amount of the hedged item are amortized
over a period that is consistent with the amortization
of other discounts or premiums associated with the
hedged item.
Cash Flow Hedges
to
in
foreign
liabilities or
Derivatives designated as cash flow hedges are
utilized to offset the variability of cash flows of
recognized assets or
forecasted
transactions. We have entered into FX contracts to
hedge the change in cash flows attributable to FX
movements
currency denominated
investment securities. Additionally, we have entered
into interest rate swap agreements to hedge the
forecasted cash flows associated with LIBOR indexed
floating-rate
rate swaps
synthetically convert the loan interest receipts from a
variable-rate to a fixed-rate, thereby mitigating the
risk attributable to changes in the LIBOR benchmark
rate.
loans. The
interest
in
Changes
the derivatives
fair value of
designated as cash flow hedges are initially recorded
in AOCI and then reclassified into earnings in the
same period or periods during which the hedged
forecasted
transaction affects earnings and are
presented in the same income statement line item as
the earnings effect of the hedged item. If the hedge
relationship is terminated, the change in fair value on
the derivative recorded in AOCI is reclassified into
earnings consistent with the timing of the hedged
item. For hedge relationships that are discontinued
because a forecasted transaction is not expected to
occur according to the original hedge terms, any
in AOCI are
related derivative values recorded
immediately recognized in earnings. The net gain
associated with cash flow hedges expected to be
reclassified from AOCI within 12 months of December
31, 2021 is approximately $60 million. The maximum
length of time over which forecasted cash flows are
hedged is 5 years.
Net Investment Hedges
Derivatives categorized as net
investment
hedges are entered into to protect the net investment
in our foreign operations against adverse changes in
exchange rates. We use FX forward contracts to
convert the foreign currency risk to U.S. dollars to
mitigate our exposure to fluctuations in FX rates. The
changes in fair value of the FX forward contracts are
recorded, net of taxes, in the foreign currency
translation component of OCI.
The following table presents the aggregate
contractual, or notional, amounts of derivative
financial instruments including those entered into for
trading and asset-and-liability management activities
as of the dates indicated:
(In millions)
Derivatives not designated as
hedging instruments:
Interest rate contracts:
December 31,
2021
December 31,
2020
Futures
$
9,604 $
2,842
Foreign exchange contracts:
Forward, swap and spot
2,569,449
2,640,989
Options purchased
Options written
Futures
Other:
Stable value contracts(1)
Deferred value awards(2)
Derivatives designated as
hedging instruments:
Interest rate contracts:
Swap agreements
Foreign exchange contracts:
Forward and swap
328
210
2,359
32,868
308
15,100
6,700
946
661
1,980
32,359
332
7,449
5,221
(1) The notional value of the stable value contracts represents our maximum
exposure. However, exposure to various stable value contracts is generally
contractually limited to substantially lower amounts than the notional values.
(2) Represents grants of deferred value awards to employees; refer to
discussion in this note under "Derivatives Not Designated as Hedging
Instruments."
Notional amounts are provided here as an
indication of the volume of our derivative activity and
serve as a reference to calculate the fair values of the
derivative.
State Street Corporation | 159
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the fair value of derivative financial instruments, excluding the impact of master
netting agreements, recorded in our consolidated statement of condition as of the dates indicated. The impact of
master netting agreements is provided in Note 11.
(In millions)
December 31, 2021
December 31, 2020
December 31, 2021
December 31, 2020
Derivative Assets(1)
Derivative Liabilities(2)
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other derivative contracts
Total
Derivatives designated as hedging instruments:
Foreign exchange contracts
Interest rate contracts
Total
$
$
$
$
15,126 $
25,939 $
15,790 $
—
—
301
15,126 $
25,939 $
16,091 $
59 $
2
61 $
4 $
1
5 $
35 $
—
35 $
25,811
157
25,968
116
42
158
(1) Derivative assets are included within other assets in our consolidated statement of condition.
(2) Derivative liabilities are included within other liabilities in our consolidated statement of condition.
The following table presents the impact of our use of derivative financial instruments on our consolidated
statement of income for the periods indicated:
Years Ended December 31,
2021
2020
2019
Location of Gain (Loss) on
Derivative in Consolidated
Statement of Income
Amount of Gain (Loss) on Derivative Recognized
in Consolidated Statement of Income
(In millions)
Derivatives not designated as hedging
instruments:
Foreign exchange contracts
Foreign exchange contracts
Interest rate contracts
Other derivative contracts(1)
Total
Foreign exchange trading services revenue $
811 $
922 $
Interest expense
Foreign exchange trading services revenue
Compensation and employee benefits
$
68
3
(332)
550 $
63
3
(189)
799 $
630
(153)
(3)
(205)
269
(1) Amount in 2021 reflects a deferred compensation expense acceleration of $147 million associated with an amendment of certain outstanding cash settled deferred
incentive compensation awards.
The following tables show the carrying amount and associated cumulative basis adjustments related to the
application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value
hedging relationships:
(In millions)
Long-term debt
Available-for-sale securities
Carrying Amount of
Hedged Assets/Liabilities
$
9,026 $
3,551
Active
De-designated(1)
(64) $
—
514
24
December 31, 2021
Cumulative Fair Value Hedging Adjustment Increasing
(Decreasing) the carrying amount
December 31, 2020
Cumulative Fair Value Hedging Adjustment Increasing
(Decreasing) the carrying amount
(In millions)
Long-term debt
Available-for-sale securities
Carrying Amount of
Hedged Assets/Liabilities
$
10,519 $
2,330
Active
De-designated(1)
3 $
2
688
43
(1) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet
date.
State Street Corporation | 160
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and December 31, 2020, the total notional amount of the interest rate swaps of fair
value hedges was $6.95 billion and $2.60 billion, respectively.
The following tables present the impact of our use of derivative financial instruments on our consolidated
statement of income for the periods indicated:
Location of
Gain (Loss) on
Derivative in
Consolidated
Statement of Income
2019
Years Ended December 31,
2020
2021
Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income
Hedged Item in
Fair Value
Hedging
Relationship
Location of Gain
(Loss) on
Hedged Item in
Consolidated
Statement of Income
2019
Years Ended December 31,
2020
2021
Amount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income
(In millions)
Derivatives designated
as fair value hedges:
Interest rate contracts
Net interest income
$
14 $
1 $
(4)
Available-for-
sale securities(1)
Net interest income
$
(19) $
(4) $
2
Interest rate contracts
Net interest income
(76)
566
266 Long-term debt
Net interest income
75
(559)
(255)
Total
$
(62) $ 567 $ 262
$
56 $
(563) $
(253)
(1) In 2021, 2020 and 2019, $16 million, $3 million and $18 million, respectively, of net unrealized gains on AFS investment securities designated in fair value hedges
was recognized in OCI.
Years Ended December 31,
2021
2020
2019
Amount of Gain or (Loss) Recognized in
Other Comprehensive Income on Derivative
Location of Gain or
(Loss) Reclassified
from Accumulated
Other Comprehensive
Income into Income
Years Ended December 31,
2021
2020
2019
Amount of Gain or (Loss) Reclassified from
Accumulated Other Comprehensive
Income into Income
(In millions)
Derivatives designated as cash
flow hedges:
Interest rate contracts
$
(78) $
176 $
8 Net interest income
Foreign exchange contracts
91
(22)
43 Net interest income
Total derivatives designated as cash
flow hedges
$
13 $
154 $
51
Derivatives designated as net
investment hedges:
Foreign exchange contracts
Total derivatives designated as net
investment hedges
Total
$
$
272 $
(250) $
272
(250)
285 $
(96) $
30
30
81
Derivatives Netting and Credit Contingencies
Netting
Gains (Losses) related to
investment securities, net
$
$
$
$
84 $
11
49 $
23
95 $
72 $
— $
— $
—
95 $
—
72 $
(10)
27
17
—
—
17
Derivatives receivable and payable as well as cash collateral from the same counterparty are netted in the
consolidated statement of condition for those counterparties with whom we have legally binding master netting
agreements in place. In addition to cash collateral received and transferred presented on a net basis, we also
receive and transfer collateral in the form of securities, which mitigate credit risk but are not eligible for netting.
Additional information on netting is provided in Note 11.
Credit Contingencies
Certain of our derivatives are subject to master netting agreements with our derivative counterparties
containing credit risk-related contingent features, which requires us to maintain an investment grade credit rating
with the various credit rating agencies. If our rating falls below investment grade, we would be in violation of the
provisions, and counterparties to the derivatives could request immediate payment or demand full overnight
collateralization on derivatives instruments in net liability positions. The aggregate fair value of all derivatives with
credit contingent features and in a net liability position as of December 31, 2021 totaled approximately $3.36 billion,
against which we provided $1.71 billion of collateral in the normal course of business. If our credit related contingent
features underlying these agreements were triggered as of December 31, 2021, the maximum additional collateral
we would be required to post to our counterparties is approximately $1.65 billion.
State Street Corporation | 161
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Offsetting Arrangements
Certain of our transactions are subject to master netting agreements that allow us to net receivables and
payables by contract and settlement type. For those legally enforceable contracts, we net receivables and payables
with the same counterparty on our statement of condition.
In addition to netting receivables and payables with our derivatives counterparty where a legal and enforceable
netting arrangement exists, we also net related cash collateral received and transferred up to the fair value
exposure amount.
With respect to our securities financing arrangements, we net balances outstanding on our consolidated
statement of condition for those transactions that met the netting requirements and were transacted under a legally
enforceable netting arrangement with the counterparty.
Securities received as collateral under securities financing or derivatives transactions can be transferred as
collateral in many instances. The securities received as proceeds under secured lending transactions are recorded
at a value that approximates fair value in other assets in our consolidated statement of condition with a related
liability to return the collateral, if we have the right to transfer or re-pledge the collateral.
As of December 31, 2021 and December 31, 2020, the value of securities received as collateral from third
parties where we are permitted to transfer or re-pledge the securities totaled $1.60 billion and $6.48 billion,
respectively, and the fair value of the portion that had been transferred or re-pledged as of the same dates was nil
and $3.88 billion, respectively.
The following tables present information about the offsetting of assets related to derivative contracts and
secured financing transactions, as of the dates indicated:
Assets:
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Cash collateral and securities netting
Total derivatives
Other financial instruments:
Resale agreements and securities
borrowing(7)(8)
Total derivatives and other financial
instruments
December 31, 2021
Gross Amounts
of Recognized
Assets(1)(2)
Gross Amounts
Offset in Statement
of Condition(3)
Net Amounts of
Assets Presented in
Statement of
Condition
Gross Amounts Not Offset in
Statement of Condition
Cash and
Securities
Received(4)
Net Amount(5)
$
15,185 $
(9,113) $
6,072 $
— $
6,072
2
NA
15,187
—
(1,966)
(11,079)
2
(1,966)
4,108
—
(723)
(723)
2
(2,689)
3,385
102,375
(77,063)
25,312
(25,096)
216
$
117,562 $
(88,142) $
29,420 $
(25,819) $
3,601
State Street Corporation | 162
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets:
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Cash collateral and securities netting
Total derivatives
Other financial instruments:
Resale agreements and securities
borrowing(7)(8)
Total derivatives and other financial
instruments
December 31, 2020
Gross Amounts
of Recognized
Assets(1)(2)
Gross Amounts
Offset in Statement
of Condition(3)
Net Amounts of
Assets Presented in
Statement of
Condition
Gross Amounts Not Offset in
Statement of Condition
Cash and
Securities
Received(4)
Net Amount(5)
$
25,943 $
(14,271) $
11,672 $
— $
11,672
1
NA
25,944
—
(5,869)
(20,140)
1
(5,869)
5,804
—
(1,105)
(1,105)
1
(6,974)
4,699
174,461
(153,025)
21,436
(20,568)
868
$
200,405 $
(173,165) $
27,240 $
(21,673) $
5,567
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Refer to Note 1 and Note 2 for additional information about the measurement basis of derivative instruments.
(3) Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.
(4) Includes securities in connection with our securities borrowing transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $25.31 billion as of December 31, 2021 were $3.01 billion of resale agreements and $22.30 billion of collateral provided related to securities
borrowing. Included in the $21.44 billion as of December 31, 2020 were $3.11 billion of resale agreements and $18.33 billion of collateral provided related to securities
borrowing. Resale agreements and collateral provided related to securities borrowing were recorded in securities purchased under resale agreements and other
assets, respectively, in our consolidated statement of condition. Refer to Note 12 for additional information with respect to principal securities finance transactions.
(8) Offsetting of resale agreements primarily relates to our involvement in FICC, where we settle transactions on a net basis for payment and delivery through the
Fedwire system.
NA Not applicable
The following tables present information about the offsetting of liabilities related to derivative contracts and
secured financing transactions, as of the dates indicated:
Liabilities:
December 31, 2021
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Other derivative contracts
Cash collateral and securities
netting
Total derivatives
Other financial instruments:
Repurchase agreements and
securities lending(7)(8)
Gross Amounts of
Recognized
Liabilities(1)(2)
Gross Amounts
Offset in Statement of
Condition(3)
Net Amounts of
Liabilities Presented in
Statement of Condition
Cash and
Securities
Received(4)
Net Amount(5)
Gross Amounts Not Offset in
Statement of Condition
$
15,825 $
(9,113) $
6,712 $
— $
6,712
—
301
NA
16,126
—
—
(1,282)
(10,395)
—
301
(1,282)
5,731
—
—
(989)
(989)
—
301
(2,271)
4,742
82,674
(77,063)
5,611
(4,066)
1,545
Total derivatives and other financial
instruments
$
98,800 $
(87,458) $
11,342 $
(5,055) $
6,287
State Street Corporation | 163
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liabilities:
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Other derivative contracts
Cash collateral and securities netting
Total derivatives
Other financial instruments:
Repurchase agreements and
securities lending(7)(8)
Gross Amounts of
Recognized
Liabilities(1)(2)
Gross Amounts Offset
in Statement of
Condition(3)
Net Amounts of
Liabilities Presented in
Statement of Condition
Gross Amounts Not Offset in
Statement of Condition
Cash and Securities
Received(4)
Net Amount(5)
December 31, 2020
$
25,927 $
(14,271) $
11,656 $
— $
11,656
42
157
NA
26,126
—
—
(1,287)
(15,558)
42
157
(1,287)
10,568
—
—
(1,732)
(1,732)
42
157
(3,019)
8,836
165,793
(153,025)
12,768
(12,448)
320
Total derivatives and other financial
instruments
$
191,919 $
(168,583) $
23,336 $
(14,180) $
9,156
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Refer to Note 1 and Note 2 for additional information about the measurement basis of derivative instruments.
(3) Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.
(4) Includes securities provided in connection with our securities lending transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $5.61 billion as of December 31, 2021 were $1.57 billion of repurchase agreements and $4.04 billion of collateral received related to securities
lending transactions. Included in the $12.77 billion as of December 31, 2020 were $3.41 billion of repurchase agreements and $9.36 billion of collateral received
related to securities lending transactions. Repurchase agreements and collateral received related to securities lending were recorded in securities sold under
repurchase agreements and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. Refer to Note 12 for additional information
with respect to principal securities finance transactions.
(8) Offsetting of repurchase agreements primarily relates to our involvement in FICC, where we settle transactions on a net basis for payment and delivery through the
Fedwire system.
NA Not applicable
The securities transferred under resale and repurchase agreements typically are U.S. Treasury, agency and
agency MBS. In our principal securities borrowing and lending arrangements, the securities transferred are
predominantly equity securities and some corporate debt securities. The fair value of the securities transferred may
increase in value to an amount greater than the amount received under our repurchase and securities lending
arrangements, which exposes us to counterparty risk. We require the review of the price of the underlying securities
in relation to the carrying value of the repurchase agreements and securities lending arrangements on a daily basis
and when appropriate, adjust the cash or security to be obtained or returned to counterparties that is reflective of
the required collateral levels.
The following table summarizes our repurchase agreements and securities lending transactions by category of
collateral pledged and remaining maturity of these agreements as of the periods indicated:
As of December 31, 2021
As of December 31, 2020
Overnight and
Continuous
Up to 30
Days
30-90
Days
Greater
than 90
Days
Total
Overnight and
Continuous
Up to 30
Days
30-90
Days
Greater
than 90
Days
Total
$
75,266 $
— $ — $
— $ 75,266 $
152,140 $
— $ — $
— $ 152,140
75,266
—
—
—
75,266
152,140
—
—
—
152,140
—
92
5,964
1
6,057
—
—
24
—
24
—
—
11
—
11
—
—
—
92
1,316
7,315
—
1
—
110
7,578
4,753
1,316
7,408
12,441
—
—
56
—
56
—
—
—
—
—
—
—
1,156
—
—
110
8,790
4,753
1,156
13,653
$
81,323 $
24 $
11 $
1,316 $ 82,674 $
164,581 $
56 $ — $
1,156 $ 165,793
(In millions)
Repurchase
agreements:
U.S. Treasury and
agency securities
Total
Securities lending
transactions:
US Treasury and
agency securities
Corporate debt
securities
Equity securities
Other(1)
Total
Gross amount of
recognized
liabilities for
repurchase
agreements and
securities lending
(1) Represents a security interest in underlying client assets related to our enhanced custody business, which assets clients have allowed us to transfer and re-pledge.
State Street Corporation | 164
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Commitments and Guarantees
The following table presents the aggregate
gross contractual amounts of our off-balance sheet
commitments and off-balance sheet guarantees as of
indicated:
the
December 31,
2020
December 31,
2021
(In millions)
dates
Commitments:
Unfunded credit facilities
Guarantees(1):
Indemnified securities financing $
$
Standby letters of credit
33,026 $
34,213
385,740 $
440,875
3,237
3,330
(1) The potential losses associated with these guarantees equal the gross
contractual amounts and do not consider the value of any collateral or reflect
any participations to independent third parties.
Unfunded Credit Facilities
Unfunded credit facilities consist primarily of
liquidity facilities provided to our fund and municipal
counterparties, as well as commitments to purchase
commercial real estate and leveraged loans that have
not yet settled.
As of December 31, 2021, approximately 76% of
our unfunded commitments to extend credit expire
within one year. Since many of these commitments
are expected to expire or renew without being drawn
upon,
the gross contractual amounts do not
necessarily represent our future cash requirements.
Indemnified Securities Financing
On behalf of our clients, we lend their securities,
as agent, to brokers and other institutions. In most
circumstances, we indemnify our clients for the fair
market value of those securities against a failure of
the borrower to return such securities. We require the
borrowers to maintain collateral in an amount in
excess of 100% of the fair market value of the
securities borrowed. Securities on loan and the
collateral are revalued daily to determine if additional
collateral is necessary or if excess collateral is
required to be returned to the borrower. Collateral
received in connection with our securities lending
services is held by us as agent and is not recorded in
our consolidated statement of condition.
The cash collateral held by us as agent is
invested on behalf of our clients. In certain cases, the
cash collateral is invested in third-party repurchase
agreements, for which we indemnify the client against
the loss of the principal invested. We require the
counterparty
repurchase
agreement to provide collateral in an amount in
excess of 100% of the amount of the repurchase
agreement. In our role as agent, the indemnified
repurchase agreements and the related collateral
held by us are not recorded in our consolidated
statement of condition.
indemnified
the
to
The following table summarizes the aggregate
fair values of indemnified securities financing and
related collateral, as well as collateral invested in
indemnified repurchase agreements, as of the dates
indicated:
(In millions)
Fair value of indemnified
securities financing
Fair value of cash and securities
held by us, as agent, as
collateral for indemnified
securities financing
Fair value of collateral for
indemnified securities financing
invested in indemnified
repurchase agreements
Fair value of cash and securities
held by us or our agents as
collateral for investments in
indemnified repurchase
agreements
December 31,
2021
December 31,
2020
$
385,740 $
440,875
404,121
463,273
61,560
54,432
67,014
58,092
to
return collateral
In certain cases, we participate in securities
finance transactions as a principal. As a principal, we
borrow securities from the lending client and then
lend such securities to the subsequent borrower,
either our client or a broker/dealer. Our right to
receive and obligation
in
connection with our securities lending transactions
are recorded in other assets and other liabilities,
respectively,
in our consolidated statement of
condition. As of December 31, 2021 and December
31, 2020, we had approximately $22.30 billion and
$18.33 billion, respectively, of collateral provided and
approximately $4.04 billion and $9.36 billion,
respectively, of collateral received from clients in
connection with our participation in principal securities
finance transactions.
Stable Value Protection
fixed-income
Stable value funds wrapped by us are high
quality diversified portfolios of short intermediate
duration
investments. Stable value
contracts are derivative contracts that also qualify as
guarantees. The notional amount under non-hedging
derivatives, provided in Note 10, generally represents
our maximum exposure under
these derivatives
contracts. However, exposure to various stable value
contracts is contractually limited to substantially lower
amounts than the notional values, which represent
the total assets of the stable value funds.
Standby Letters of Credit
Standby
letters of credit provide credit
enhancement to our municipal clients to support the
issuance of capital markets financing.
FICC Guarantee
As a sponsoring member in the FICC member
program, we provide a guarantee to FICC in the
event a customer fails to perform its obligations under
a transaction. In order to minimize the risk associated
with this guarantee, sponsored members acting as
State Street Corporation | 165
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
buyers generally grant a security interest in the
subject securities received under and held on their
behalf by State Street. For additional information on
our repurchase and reverse repurchase agreements,
please refer to Note 11 to the consolidated financial
statements in this Form 10-K.
Note 13. Contingencies
Legal and Regulatory Matters
or
inquiries
regulatory
In the ordinary course of business, we and our
subsidiaries are involved in disputes, litigation, and
governmental
and
investigations, both pending and threatened. These
matters, if resolved adversely against us or settled,
may result in monetary awards or payments, fines
and penalties or require changes in our business
practices. The resolution or settlement of these
matters is inherently difficult to predict. Based on our
assessment of these pending matters, we do not
believe that the amount of any judgment, settlement
or other action arising from any pending matter is
likely to have a material adverse effect on our
consolidated financial condition. However, an adverse
outcome or development in certain of the matters
described below could have a material adverse effect
on our consolidated results of operations for the
period in which such matter is resolved, or an accrual
is determined to be required, on our consolidated
financial condition, or on our reputation.
related
legal and
We evaluate our needs for accruals of loss
contingencies
regulatory
to
proceedings on a case-by-case basis. When we have
a liability that we deem probable, and we deem the
amount of such liability can be reasonably estimated
as of
financial
the date of our consolidated
statements, we accrue our estimate of the amount of
loss. We also consider a loss probable and establish
an accrual when we make, or intend to make, an offer
of settlement. Once established, an accrual is subject
to subsequent adjustment as a result of additional
information. The resolution of legal and regulatory
proceedings and the amount of reasonably estimable
loss (or range thereof) are inherently difficult to
predict, especially in the early stages of proceedings.
Even if a loss is probable, an amount (or range) of
loss might not be reasonably estimated until the later
stages of the proceeding due to many factors such as
the presence of complex or novel legal theories, the
discretion of governmental authorities in seeking
sanctions or negotiating resolutions in civil and
criminal matters, the pace and timing of discovery
and other assessments of facts and the procedural
posture of the matter (collectively, "factors influencing
reasonable estimates").
As of December 31, 2021, our aggregate
accruals for loss contingencies for legal, regulatory
and related matters totaled approximately $15 million,
the extent
for probable
including potential fines by government agencies and
civil litigation with respect to the matters specifically
that we have
discussed below. To
established accruals in our consolidated statement of
condition
loss contingencies, such
accruals may not be sufficient to cover our ultimate
financial exposure associated with any settlements or
judgments. Any such ultimate financial exposure, or
proceedings to which we may become subject in the
future, could have a material adverse effect on our
financial
businesses, on our
statements or on our reputation.
future consolidated
As of December 31, 2021, for those matters for
which we have accrued probable loss contingencies
(including the Invoicing Matter described below) and
for other matters for which loss is reasonably possible
(but not probable) in future periods, and for which we
are able to estimate a range of reasonably possible
loss, our estimate of the aggregate reasonably
possible loss (in excess of any accrued amounts)
ranges up to approximately $45 million. Our estimate
with respect to the aggregate reasonably possible
loss is based upon currently available information and
is subject to significant judgment and a variety of
assumptions and known and unknown uncertainties,
which may change quickly and significantly from time
to time, particularly if and as we engage with
applicable governmental agencies or plaintiffs in
connection with a proceeding. Also, the matters
underlying the reasonably possible loss will change
from time to time. As a result, actual results may vary
significantly from the current estimate.
In certain pending matters, it is not currently
feasible to reasonably estimate the amount or a
range of reasonably possible loss, and such losses,
which may be significant, are not included in the
estimate of reasonably possible
loss discussed
above. This is due to, among other factors, the
factors influencing reasonable estimates described
above. An adverse outcome in one or more of the
matters for which we have not estimated the amount
or a range of reasonably possible loss, individually or
in the aggregate, could have a material adverse effect
future consolidated
on our businesses, on our
financial statements or on our reputation. Given that
our actual
legal or regulatory
from any
proceeding for which we have provided an estimate
of the reasonably possible loss could significantly
exceed such estimate, and given that we cannot
estimate reasonably possible loss for all legal and
regulatory proceedings as to which we may be
subject now or in the future, no conclusion as to our
ultimate exposure from current pending or potential
legal or regulatory proceedings should be drawn from
the current estimate of reasonably possible loss.
losses
State Street Corporation | 166
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following discussion provides information
with respect to significant legal, governmental and
regulatory matters.
Invoicing Matter
In 2015, we determined that we had incorrectly
invoiced clients for certain expenses. We have
reimbursed most of our affected customers for those
expenses, and we have implemented enhancements
to our billing processes. In connection with our
enhancements to our billing processes, we continue
to review historical billing practices and may from
time to time identify additional remediation. In 2017,
we identified an additional area of incorrect expense
billing associated with mailing services
in our
retirement services business. We currently expect the
cumulative total of our payments to customers for
these invoicing errors, including the error in the
retirement services business, to be at least $355
million, all of which has been paid or is accrued.
However, we may identify additional remediation
costs.
In March 2017, a purported class action was
commenced against us alleging that our invoicing
practices violated duties owed to retirement plan
customers under the Employee Retirement Income
Security Act. In September 2021, the parties agreed
to resolve the matter and filed a stipulation of
dismissal. In addition, we have received a purported
class action demand letter alleging that our invoicing
practices were unfair and deceptive under
law. A class of customers, or
Massachusetts
particular customers, may assert that we have not
paid to them all amounts incorrectly invoiced, and
may seek double or
treble damages under
Massachusetts law.
the
We resolved potential criminal claims that arose
from these matters by entering into a deferred
prosecution agreement with the office of the United
States Attorney for the District of Massachusetts and
paying a $115 million penalty in May 2021. In June
2019, we reached an agreement with the SEC to
settle its claims that we violated the recordkeeping
provisions of Section 34(b) of
Investment
Company Act of 1940 and caused violations of
Section 31(a) of the Investment Company Act and
Rules 31a-1(a) and 31a-1(b)
in
connection with our overcharges of customers which
are registered investment companies. In reaching this
settlement, we neither admitted nor denied the claims
contained in the SEC’s order, and agreed to pay a
civil monetary penalty of $40 million. Also in June
the
2019, we
Massachusetts Attorney General’s office to resolve its
claims related
this
this matter.
settlement, we neither admitted nor denied the claims
in the order, and agreed to pay a civil monetary
reached an agreement with
In reaching
thereunder
to
penalty of $5.5 million. The SEC and Massachusetts
Attorney General’s office settlements both recognize
that the payment of $48.8 million in disgorgement and
interest is satisfied by our direct reimbursements of
our customers. We paid fines to resolve claims of the
Securities Divisions of the Secretaries of the State of
Massachusetts and New Hampshire. The costs
associated with the settlements discussed above
were included in our related previously established
accruals for loss contingencies.
We have not resolved certain claims that may be
made by the U.S. Department of Labor. We do not
know whether any such claims will be brought, and
there can be no assurance that any settlement of any
such claims will be reached on financial terms
acceptable to us or at all. The aggregate amount of
penalties that may potentially be imposed upon us in
connection with the resolution of any such matters is
not currently known.
Shareholder Litigation
A shareholder of ours filed a derivative complaint
against certain of the Company’s past and present
officers and directors to recover alleged losses
incurred by the Company relating to the invoicing
matter and to the Ohio public retirement plans matter.
The Suffolk Superior Court Department of the Trial
the Commonwealth of Massachusetts,
Court of
without objection, approved a settlement of the claim
in which we agreed to take, or to continue to take,
specified steps to improve our ongoing governance
and compliance policies, and to pay a fee to plaintiff's
counsel.
Gomes, et al. v. State Street Corp.
Eight participants in our Salary Savings Program
filed a purported class action complaint in May 2021
on behalf of participants and beneficiaries who
participated in the Program and invested in our
proprietary investment fund options between May
2015 and the present. The complaint names the Plan
Sponsor as well as the committees overseeing the
Plan and their respective members as defendants,
and alleges breach of fiduciary duty and violations of
other duties owed to retirement plan participants
under the Employee Retirement Income and Security
Act. We and the other named defendants deny the
alleged claims and are proceeding with a defense of
the matter.
Edmar Financial Company, LLC et al v. Currenex,
Inc. et al
In August 2021, two former Currenex clients filed
a putative civil class action lawsuit in the Southern
District of New York alleging antitrust violations, fraud
and a civil Racketeer
Influenced and Corrupt
Organization Act violation against Currenex, State
Street and others.
State Street Corporation | 167
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
In determining our provision for income taxes,
we make certain judgments and interpretations with
respect to tax laws in jurisdictions in which we have
business operations. Because of the complex nature
of these laws, in the normal course of our business,
we are subject to challenges from U.S. and non-U.S.
income tax authorities regarding the amount of
income taxes due. These challenges may result in
adjustments to the timing or amount of taxable
income or deductions or the allocation of taxable
income among tax jurisdictions. We recognize a tax
benefit when it is more likely than not that our position
will result in a tax deduction or credit. Unrecognized
tax benefits of approximately $252 million as of
December 31, 2021 decreased from $308 million as
of December 31, 2020.
We are presently under audit by a number of tax
authorities. The earliest tax year open to examination
in jurisdictions where we have material operations is
2013. Management believes that we have sufficiently
accrued liabilities as of December 31, 2021 for
potential tax exposures.
Note 14. Variable Interest Entities
We are involved, in the normal course of our
business, with various types of special purpose
entities, some of which meet the definition of VIEs.
When evaluating a VIE for consolidation, we must
determine whether or not we have a variable interest
in the entity. Variable interests are investments or
other interests that absorb portions of an entity’s
expected losses or receive portions of the entity’s
expected returns. If it is determined that we do not
have a variable interest in the VIE, no further analysis
is required and we do not consolidate the VIE. If we
hold a variable interest in a VIE, we are required by
U.S. GAAP to consolidate that VIE when we have a
controlling financial interest in the VIE and therefore
are deemed to be the primary beneficiary. We are
determined to have a controlling financial interest in a
VIE when it has both the power to direct the activities
of the VIE that most significantly impact the VIE’s
economic performance and the obligation to absorb
losses or the right to receive benefits of the VIE that
could potentially be significant to that VIE. This
determination is evaluated periodically as facts and
circumstances change.
Asset-Backed Investment Securities
We invest in various forms of ABS, which we
carry in our investment securities portfolio. These
ABS meet
the U.S. GAAP definition of asset
securitization entities, which are considered to be
VIEs. We are not considered to be the primary
beneficiary of these VIEs since we do not have
control over their activities. Additional information
about our ABS is provided in Note 3.
Tax-Exempt Investment Program
In the normal course of our business, we
structure and sell certificated interests in pools of tax-
exempt investment grade assets, principally to our
mutual fund clients. We structure these pools as
partnership trusts, and the assets and liabilities of the
trusts are recorded in our consolidated statement of
condition as AFS investment securities and other
short-term borrowings.
We transfer assets to the trusts from our
investment securities portfolio at adjusted book value,
and the trusts finance the acquisition of these assets
by selling certificated interests issued by the trust to
third-party investors and to us as residual holder.
These transfers do not meet the de-recognition
criteria defined by U.S. GAAP, and therefore, the
assets continue to be recorded in our consolidated
financial statements. As of December 31, 2020, we
carried AFS investment securities, composed of
securities related to state and political subdivisions,
with a fair value of $0.70 billion, and other short-term
borrowings of $0.62 billion
in our consolidated
statement of condition in connection with these trusts.
In November 2021, all certificated interests
issued by the trusts were repaid. As of December 31,
2021, we carried $0.52 billion of AFS investment
securities related to state and political subdivisions
previously held by these trusts.
Under separate legal agreements, we provide
liquidity facilities to these trusts and, with respect to
certain securities, letters of credit. As of December
31, 2021, our commitments related to the trusts have
been reduced to zero.
Interests in Investment Funds
In the normal course of business, we manage
various types of investment funds through State
Street Global Advisors in which our clients are
investors, including State Street Global Advisors
commingled investment vehicles and other similar
investment structures. The majority of our AUM are
contained within such funds. The services we provide
to these funds generate management fee revenue.
From time to time, we may invest cash in the funds in
order for the funds to establish a performance history
for newly-launched strategies, referred to as seed
capital, or for other purposes.
With respect to our interests in funds that meet
the definition of a VIE, a primary beneficiary
assessment is performed to determine if we have a
interest. As part of our
controlling
financial
facts and
assessment, we consider all
the
circumstances
and
characteristics of the variable interest(s), the design
and characteristics of
the other
the
involvements of the enterprise with the fund. Upon
consolidation of certain
the
specialized investment company accounting rules
followed by the underlying funds.
funds, we
fund and
regarding
retain
terms
the
State Street Corporation | 168
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All of the underlying investments held by such consolidated funds are carried at fair value, with corresponding
changes in the investments’ fair values reflected in foreign exchange trading services revenue in our consolidated
statement of income. When we no longer control these funds due to a reduced ownership interest or other reasons,
the funds are de-consolidated and accounted for under another accounting method if we continue to maintain
investments in the funds.
As of December 31, 2021, we had no consolidated funds. As of December 31, 2020, the aggregate assets and
liabilities of our consolidated sponsored investment funds totaled $17 million and $4 million, respectively. As of
December 31, 2020, our maximum total exposure associated with the consolidated sponsored investment funds
totaled $13 million and represented the value of our economic ownership interest in the funds.
Our conclusion to consolidate a fund may vary from period to period, most commonly as a result of fluctuation
in our ownership interest as a result of changes in the number of fund shares held by either us or by third parties.
Given that the funds follow specialized investment company accounting rules which prescribe fair value, a de-
consolidation generally would not result in gains or losses for us.
The net assets of any consolidated fund are solely available to settle the liabilities of the fund and to settle any
investors’ ownership redemption requests, including any seed capital invested in the fund by us. We are not
contractually required to provide financial or any other support to any of our funds. In addition, neither creditors nor
equity investors in the funds have any recourse to our general credit.
As of December 31, 2021 and December 31, 2020, we managed certain funds, considered VIEs, in which we
held a variable interest but for which we were not deemed to be the primary beneficiary. Our potential maximum
loss exposure related to these unconsolidated funds totaled $17 million and $22 million as of December 31, 2021
and December 31, 2020, respectively, and represented the carrying value of our investments, which are recorded in
other assets in our consolidated statement of condition. The amount of loss we may recognize during any period is
limited to the carrying amount of our investments in the unconsolidated funds.
Note 15. Shareholders' Equity
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and
outstanding as of December 31, 2021:
Preferred
Stock(1):
Issuance Date
Depositary
Shares
Issued
Ownership
Interest Per
Depositary
Share
Liquidation
Preference
Per Share
Liquidation
Preference
Per
Depositary
Share
Series D
February 2014
30,000,000
1/4,000th
100,000
25
Series F(3) May 2015
250,000
1/100th
100,000
1,000
Series G
April 2016
20,000,000
1/4,000th
100,000
25
Series H
September 2018
500,000
1/100th
100,000
1,000
Dividend
Payment
Frequency
Carrying
Value as of
December
31, 2021
(In millions)
Redemption Date(2)
Quarterly
$
742 March 15, 2024
Quarterly
247 September 15, 2020
Quarterly
493 March 15, 2026
Per Annum Dividend Rate
5.90% to but excluding March
15, 2024, then a floating rate
equal to the three-month LIBOR
plus 3.108%
5.25% to but excluding
September 15, 2020, then a
floating rate equal to the three-
month LIBOR plus 3.597%, or
3.7998% effective December
15, 2021
5.35% to but excluding March
15, 2026, then a floating rate
equal to the three-month LIBOR
plus 3.709%
5.625% to but excluding
December 15, 2023, then a
floating rate equal to the three-
month LIBOR plus 2.539%
Semi-
annually
494 December 15, 2023
(1) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital
treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid
dividends, without accumulation of any undeclared dividends.
(2) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price
per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(3) Series F preferred stock is redeemable on September 15, 2020 and on each succeeding dividend payment date.
State Street Corporation | 169
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 15, 2021, we redeemed an aggregate of $500 million, or 5,000 of the 7,500 outstanding shares of
our non-cumulative perpetual preferred stock, Series F, for cash at a redemption price of $100,000 per share
(equivalent to $1,000 per depositary share) plus all declared and unpaid dividends.
The following table presents the dividends declared for each of the series of preferred stock issued and
outstanding for the periods indicated:
Dividends
Declared per
Share
2021
Dividends
Declared per
Depositary
Share
Years Ended December 31,
Total
Dividends
Declared per
Share
2020
Dividends
Declared per
Depositary
Share
Total
$
— $
— $
— $
1,313 $
0.33 $
5,900
3,808
5,352
5,625
1.48
38.08
1.32
56.25
$
44
15
27
28
114
5,900
6,223
5,352
5,625
1.48
62.23
1.32
56.25
6
44
47
27
28
$
152
(Dollars in millions, except per
share amounts)
Preferred Stock:
Series C
Series D
Series F
Series G
Series H
Total
In February 2022, we declared dividends on our series D, F, and G preferred stock of approximately $1,475,
$950, and $1,338, respectively, per share, or approximately $0.37, $9.50, and $0.33, respectively, per depositary
share. These dividends total approximately $11 million, $2 million, and $7 million on our series D, F, and G preferred
stock, respectively, which will be paid in March 2022.
Common Stock
In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock.
The offering price was $87.60 per share and net proceeds totaled approximately $1.9 billion. We expect to use
these net proceeds to finance our planned acquisition of the BBH Investor Services business.
In June 2019, our Board approved a common share repurchase program authorizing the purchase of up to
$2.0 billion of our common stock from July 1, 2019 through June 30, 2020 (the 2019 Program). We repurchased
$500 million of our common stock in each of the third and fourth quarters of 2019 and the first quarter of 2020 under
the 2019 Program.
On March 16, 2020, we, along with the other U.S. G-SIBs, suspended common share repurchases and
maintained this suspension through the fourth quarter of 2020 in response to the COVID-19 pandemic. This
suspension was consistent with limitations imposed by the Federal Reserve beginning in the second quarter of
2020. As a result, we had no repurchases of our common stock in the second, third or fourth quarters of 2020.
In December 2020, the Federal Reserve issued results of 2020 resubmission stress tests and authorized us to
continue to pay common stock dividends at current levels and to resume repurchasing common shares in the first
quarter of 2021. In January 2021, our Board authorized a share repurchase program for the purchase of up to
$475 million of our common stock through March 31, 2021. In April 2021, our Board authorized a share repurchase
program for the repurchase of up to $425 million of our common stock through June 30, 2021, consistent with the
limit set by the Federal Reserve. In July 2021, our Board authorized a share repurchase program for the repurchase
of up to $3.0 billion of our common stock through the end of 2022.
In connection with our planned acquisition of the BBH Investor Services business, we did not repurchase any
common stock during the third and fourth quarters of 2021 under the common share repurchase plan approved by
our Board in July 2021, and we do not intend to repurchase any common stock during the first quarter of 2022. We
intend to resume our common share repurchases during the second quarter of 2022.
The table below presents the activity under our common share repurchase program for the period indicated:
Shares Acquired (In millions)
Average Cost per Share
Total Acquired (In millions)
Year Ended December 31, 2021
2019 Program
6.5 $
77.35 $
Shares Acquired (In millions)
Average Cost per Share
Total Acquired (In millions)
11.2 $
80.00 $
Year Ended December 31, 2020
900
500
State Street Corporation | 170
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the dividends declared on common stock for the periods indicated:
Years Ended December 31,
2021
2020
Common Stock
$
2.18 $
779 $
2.08 $
734
Dividends Declared per Share
Total (In millions)
Dividends Declared per Share
Total (In millions)
Accumulated Other Comprehensive Income (Loss)
The following table presents the after-tax components of AOCI for the periods indicated:
(In millions)
Net unrealized gains (losses) on cash flow hedges
Net unrealized gains (losses) on available-for-sale securities portfolio
Net unrealized gains (losses) related to reclassified available-for-sale securities
Net unrealized gains (losses) on available-for-sale securities
Net unrealized (losses) on available-for-sale securities designated in fair value hedges
Net unrealized gains (losses) on hedges of net investments in non-U.S. subsidiaries
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit
Net unrealized (losses) on retirement plans
Foreign currency translation
Total
Years Ended December 31,
2021
2020
2019
$
(2) $
57
$
—
(31)
(31)
(17)
68
(2)
(130)
(1,019)
936
(55)
881
(33)
(204)
(2)
(178)
(334)
$
(1,133) $
187
$
(70)
426
19
445
(36)
46
(2)
(187)
(1,072)
(876)
The following table presents changes in AOCI by component, net of related taxes, for the periods indicated:
(In millions)
Net Unrealized
Gains (Losses)
on Cash Flow
Hedges
Net Unrealized
Gains
(Losses) on
Available-for-
Sale Securities
Net Unrealized
Gains (Losses) on
Hedges of Net
Investments in Non-
U.S. Subsidiaries
Other-Than-
Temporary
Impairment on
Held-to-Maturity
Securities
Net
Unrealized
Losses on
Retirement
Plans
Foreign
Currency
Translation
Total
Balance as of December 31, 2019
$
(70) $
409 $
46 $
(2) $
(187) $
(1,072) $
(876)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified into (out of) accumulated
other comprehensive loss
Other comprehensive income (loss)
179
(52)
127
439
—
439
(250)
—
(250)
—
—
—
—
9
9
738
—
738
1,106
(43)
1,063
Balance as of December 31, 2020
$
57 $
848 $
(204) $
(2) $
(178) $
(334) $
187
Other comprehensive income (loss) before
reclassifications
Amounts reclassified into (out of) accumulated
other comprehensive loss
Other comprehensive income (loss)
11
(70)
(59)
(854)
(42)
(896)
272
—
272
—
—
—
1
47
48
(685)
(1,255)
—
(65)
(685)
(1,320)
Balance as of December 31, 2021
$
(2) $
(48) $
68 $
(2) $
(130) $
(1,019) $
(1,133)
The following table presents after-tax reclassifications into earnings for the periods indicated:
(In millions)
Available-for-sale securities:
Years Ended December 31,
2021
2020
Amounts Reclassified (into)
out of Earnings
Affected Line Item in Consolidated Statement
of Income
Net realized (gains) losses from sales of available-for-sale securities, net of
related taxes of $(15) and $0, respectively
$
(42) $
Net gains (losses) from sales of available-for-
sale securities
—
Cash flow hedges:
(Gain) reclassified from accumulated other comprehensive income into income,
net of related taxes of $25 and $20, respectively
(70)
Net interest income reclassified from other
comprehensive income
(52)
Retirement plans:
Amortization of actuarial losses, net of related taxes of $16 and $3, respectively
47
9 Compensation and employee benefits expenses
Total reclassifications into (out of) accumulated other comprehensive loss
$
(65) $
(43)
Note 16. Regulatory Capital
We are subject to various regulatory capital requirements administered by federal banking agencies. Failure to
meet minimum regulatory capital requirements can initiate certain mandatory and discretionary actions by regulators
that, if undertaken, could have a direct material effect on our consolidated financial condition. Under current
regulatory capital adequacy guidelines, we must meet specified capital requirements that involve quantitative
measures of our consolidated assets, liabilities and off-balance sheet exposures calculated in conformity with
regulatory accounting practices. Our capital components and their classifications are subject to qualitative
judgments by regulators about components, risk weightings and other factors.
State Street Corporation | 171
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As required by the Dodd-Frank Act, we and State Street Bank, as advanced approaches banking
organizations, are subject to a "capital floor" in the calculation and assessment of regulatory capital adequacy by
U.S. banking regulators. Beginning on January 1, 2015, we were required to calculate our risk- based capital ratios
using both the advanced approaches and the standardized approach. As a result, from January 1, 2015 going
forward, our risk-based capital ratios for regulatory assessment purposes are the lower of each ratio calculated
under the standardized approach and the advanced approaches.
As of December 31, 2021, we and State Street Bank exceeded all regulatory capital adequacy requirements to
which we were subject. As of December 31, 2021, State Street Bank was categorized as “well capitalized” under the
applicable regulatory capital adequacy framework, and exceeded all “well capitalized” ratio guidelines to which it
was subject. Management believes that no conditions or events have occurred since December 31, 2021 that have
changed the capital categorization of State Street Bank.
The following table presents the regulatory capital structure, total RWA, related regulatory capital ratios and the
minimum required regulatory capital ratios for us and State Street Bank as of the dates indicated.
(Dollars in millions)
Common shareholders' equity:
State Street Corporation
State Street Bank
Basel III
Advanced
Approaches
December 31,
2021
Basel III
Standardized
Approach
December 31,
2021
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Basel III
Advanced
Approaches
December 31,
2021
Basel III
Standardized
Approach
December 31,
2021
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Common stock and related surplus
$
11,291
$
11,291
$
10,709
$
10,709
$
13,047
$
13,047
$
12,893
$
12,893
Retained earnings
Accumulated other comprehensive income (loss)
25,238
(1,133)
25,238
(1,133)
187
187
23,442
23,442
15,700
15,700
12,939
12,939
(926)
—
(926)
—
371
—
371
—
Treasury stock, at cost
(10,009)
(10,009)
(10,609)
(10,609)
Total
25,387
25,387
23,729
23,729
27,821
27,821
26,203
26,203
Regulatory capital adjustments:
Goodwill and other intangible assets, net of
associated deferred tax liabilities
Other adjustments(1)
Common equity tier 1 capital
Preferred stock
Tier 1 capital
Qualifying subordinated long-term debt
Allowance for credit losses
Total capital
Risk-weighted assets:
Credit risk(2)
Operational risk(3)
Market risk
(8,935)
(8,935)
(9,019)
(9,019)
(8,667)
(8,667)
(8,745)
(8,745)
(505)
(505)
(333)
(333)
(309)
(309)
(152)
(152)
15,947
1,976
17,923
1,588
—
15,947
1,976
17,923
1,588
108
14,377
2,471
16,848
961
1
14,377
2,471
16,848
961
148
18,845
18,845
17,306
17,306
—
—
—
—
18,845
18,845
17,306
17,306
752
—
752
108
966
10
966
148
$
19,511
$
19,619
$
17,810
$
17,957
$
19,597
$
19,705
$
18,282
$
18,420
$
63,735
$ 109,554
$
63,367
$ 114,892
$
57,405
$ 106,405
$
58,960
$ 110,797
45,550
2,113
NA
2,113
44,150
2,188
NA
2,188
42,813
2,113
NA
2,113
43,663
2,188
NA
2,188
Total risk-weighted assets
$ 111,398
$ 111,667
$ 109,705
$ 117,080
$ 102,331
$ 108,518
$ 104,811
$ 112,985
Adjusted quarterly average assets
$ 293,567
$ 293,567
$ 263,490
$ 263,490
$ 290,403
$ 290,403
$ 260,489
$ 260,489
Capital Ratios:
2021 Minimum
Requirements(4)
2020 Minimum
Requirements(4)
Common equity
tier 1 capital
Tier 1 capital
Total capital
Tier 1
leverage(5)
8.0 %
8.0 %
14.3 %
14.3 %
13.1 %
12.3 %
18.4 %
17.4 %
16.5 %
15.3 %
9.5
11.5
4.0
9.5
11.5
4.0
16.1
17.5
6.1
16.1
17.6
6.1
15.4
16.2
6.4
14.4
15.3
6.4
18.4
19.2
6.5
17.4
18.2
6.5
16.5
17.4
6.6
15.3
16.3
6.6
(1) Other adjustments within CET1 capital primarily include the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed
deferred tax assets, and other required credit risk based deductions.
(2) Under the advanced approaches, credit risk RWA includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of over-the-
counter (OTC) derivative contracts. We used a simple CVA approach in conformity with the Basel III advanced approaches.
(3) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from
period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may
differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for
model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output
of our operational RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(4) Minimum requirements include a CCB of 2.5% and a SCB of 2.5% for the advanced approaches and the standardized approach, respectively, a G-SIB surcharge of 1.0% and a
countercyclical buffer of 0%.
(5) State Street Bank is required to maintain a minimum Tier 1 leverage ratio of 5% as it is the insured depository institution subsidiary of State Street Corporation, a U.S. G-SIB.
NA Not applicable
State Street Corporation | 172
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Net Interest Income
The following table presents the components of
interest income and interest expense, and related NII,
indicated:
for
periods
the
(In millions)
Interest income:
Years Ended December 31,
2021
2020
2019
Interest-bearing deposits with banks
$
(15) $
76 $
416
Investment securities:
Investment securities available-for-
sale
Investment securities held-to-
maturity
Investment securities purchased
under money market liquidity facility
572
665
4
748
829
117
1,023
974
—
Total Investment securities
1,241
1,694
1,997
Securities purchased under resale
agreements
Loans
Other interest-earning assets
Total interest income
Interest expense:
27
638
17
126
624
55
364
769
395
1,908
2,575
3,941
Interest-bearing deposits
(263)
(117)
663
Short term borrowings under money
market liquidity facility
Securities sold under repurchase
agreements
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Total interest expense
Net interest income
4
—
2
219
41
3
101
4
17
312
58
375
—
31
21
414
246
1,375
$
1,905 $
2,200 $
2,566
Note 18. Equity-Based Compensation
We record compensation expense for equity-
based awards, such as deferred stock and
performance awards, based on the closing price of
our common stock on the date of grant, adjusted if
appropriate, based on the eligibility of the award to
receive dividends.
related
Compensation expense related to equity-based
and cash settled stock awards with service-only
conditions and terms that provide for a graded vesting
schedule is recognized on a straight-line basis over
the required service period for the entire award.
to equity-based
Compensation expense
awards with performance conditions and terms that
provide for a graded vesting schedule is recognized
over the requisite service period for each separately
vesting tranche of the award, and is based on the
probable outcome of the performance conditions at
each reporting date. Compensation expense is
adjusted
the
estimated amount of awards that will be forfeited prior
to vesting, and for employees who have met certain
retirement eligibility criteria. Compensation expense
for common stock awards granted to employees
meeting early retirement eligibility criteria is fully
expensed on the grant date.
for assumptions with
respect
to
Dividend equivalents for certain equity-based
awards are paid on stock units on a current basis
prior to vesting and distribution.
The 2017 Stock Incentive Plan, or 2017 Plan,
was approved by shareholders in May 2017 for
issuance of stock and stock based awards. Awards
may be made under the 2017 Plan for (i) up to 8.3
million shares of common stock plus (ii) up to an
additional 28.5 million shares that were available to
be issued under the 2006 Equity Incentive Plan, or
2006 Plan, or may become available for issuance
under the 2006 Plan due to expiration, termination,
cancellation,
forfeiture or repurchase of awards
granted under the 2006 Plan. As of December 31,
2021, a total of 20.8 million shares from the 2006
Plan have been added to and may be issued from the
2017 Plan. As of December 31, 2021, a cumulative
total of 15.2 million shares have been awarded under
the 2017 Plan, compared to cumulative totals of
11.3 million shares and 7.6 million shares as of
December 31, 2020 and 2019, respectively.
The 2017 Plan allows for shares withheld in
payment of the exercise price of an award or in
satisfaction of tax withholding requirements, shares
forfeited due to employee termination, shares expired
under option awards, or shares not delivered when
performance conditions have not been met, to be
added back to the pool of shares available for
issuance under the 2017 Plan. From inception to
December 31, 2021, 3 million shares had been
awarded under the 2017 Plan but not delivered, and
have become available for re-issue. As of December
31, 2021, a total of 16.9 million shares were available
for future issuance under the 2017 Plan.
For deferred stock awards granted under the
Plans, no common stock is issued at the time of grant
and the award does not possess dividend and voting
rights. Generally, these grants vest over one to four
years. Performance awards granted are earned over
a performance period based on the achievement of
defined goals, generally over three years. Payment
for performance awards is made in shares of our
common stock equal to its fair market value per
share, based on the performance of certain financial
ratios, after the conclusion of each performance
period.
Beginning with 2012, malus-based forfeiture
provisions were included in deferred stock awards
granted to employees identified as “material risk-
takers,” as defined by management. These malus-
based forfeiture provisions provide for the reduction
or cancellation of unvested deferred compensation,
such as deferred stock awards and performance
based awards, if it is determined that a material risk-
taker made risk-based decisions that exposed us to
in a material
inappropriate
resulted
risks
that
State Street Corporation | 173
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unexpected loss at the business-unit, line-of-business
or corporate level. In addition, awards granted to
certain of our senior executives, as well as awards
granted to individuals in certain jurisdictions, may be
subject to recoupment after vesting (if applicable) and
delivery to the individual in specified circumstances
generally relating to fraud or willful misconduct by the
individual that results in material harm to us or a
material financial restatement.
Compensation expense related to deferred stock
awards and performance awards, which we record as
a component of compensation and employee benefits
expense in our consolidated statement of income,
was $259 million, $240 million and $235 million for
the years ended December 31, 2021, 2020 and 2019,
respectively. Such expense for 2021, 2020 and 2019
excluded a release of $5 million, an expense of $29
million and a release of $4 million, respectively,
associated with acceleration of expense in connection
with targeted staff reductions. This expense was
included in the severance-related portion of the
associated restructuring or repositioning charges
recorded in each respective year.
For the years ended December 31, 2021, 2020
and 2019, no stock appreciation
rights were
exercised. As of December 31, 2021, there was no
unrecognized compensation cost related to stock
appreciation rights.
Shares
(In thousands)
Weighted-Average
Grant Date Fair
Value
Deferred Stock
Awards:
Outstanding as of
December 31, 2019
Granted
Vested
Forfeited
Outstanding as of
December 31, 2020
Granted
Vested
Forfeited
Outstanding as of
December 31, 2021
5,834 $
2,926
(2,938)
(136)
5,686
3,136
(2,801)
(244)
5,777
74.33
63.56
71.33
71.79
69.70
69.48
73.70
68.77
67.55
The total fair value of deferred stock awards
vested for the years ended December 31, 2021, 2020
and 2019, based on the weighted average grant date
fair value in each respective year, was $206 million,
$210 million and $220 million, respectively. As of
December
unrecognized
compensation cost related to deferred stock awards,
net of estimated forfeitures, was $192 million, which
is expected to be recognized over a weighted-
average period of 2.5 years.
2021,
total
31,
Performance Awards:
Outstanding as of
December 31, 2019
Granted
Forfeited
Paid out
Outstanding as of
December 31, 2020
Granted
Forfeited
Paid out
Outstanding as of
December 31, 2021
Shares
(In thousands)
Weighted-Average
Grant Date Fair Value
2,139 $
811
(23)
(410)
2,517
802
(14)
(716)
2,589
71.82
62.58
94.91
73.10
68.42
61.87
57.66
78.94
63.54
The total fair value of performance awards
vested for the years ended December 31, 2021, 2020
and 2019, based on the weighted average grant date
fair value in each respective year, was $57 million,
$30 million and $22 million, respectively. As of
December
unrecognized
compensation cost related to performance awards,
net of estimated forfeitures, was $22 million, which is
expected to be recognized over a weighted-average
period of 1.9 years.
2021,
total
31,
Shares
(In thousands)
Weighted-Average
Grant Date Fair Value
Cash Settled Restricted Stock Awards:
Outstanding as of
December 31, 2019
— $
Granted
Forfeited
Paid out
Outstanding as of
December 31, 2020
Granted
Forfeited
Paid out
Outstanding as of
December 31, 2021
—
—
—
—
46
—
(23)
23
—
—
—
—
—
69.95
—
69.95
69.95
State Street Corporation | 174
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total fair value of cash settled restricted
stock awards vested during
the year ended
December 31, 2021, based on the weighted average
grant date fair value, was $2 million. As of December
31, 2021, there was no unrecognized compensation
cost related to cash settled restricted stock awards.
to meet
We utilize either treasury shares or authorized
but unissued shares to satisfy the issuance of
common stock under our equity incentive plans. We
do not have a specific policy concerning purchases of
our common stock to satisfy stock issuances. We
have a general policy concerning purchases of our
common stock
issuances under our
employee benefit plans, including other corporate
purposes. Various factors determine the amount and
timing of our purchases of our common stock,
including regulatory reviews and approvals or non-
objections, our regulatory capital requirements, the
number of shares we expect to issue under employee
benefit plans, market conditions (including the trading
price of our common stock), and legal considerations.
These factors can change at any time, and the
number of shares of common stock we will purchase
or when we will purchase them cannot be assured.
Additional information on our common stock purchase
program is provided in Note 15.
Note 19. Employee Benefits
Defined Benefit Pension and Other Post-
Retirement Benefit Plans
State Street Bank and certain of
its U.S.
subsidiaries participate in a non-contributory, tax-
qualified defined benefit pension plan. The U.S.
defined benefit pension plan was frozen as of
December 31, 2007 and no new employees were
eligible to participate after that date. We have agreed
to contribute sufficient amounts as necessary to meet
the benefits paid to plan participants and to fund the
plan’s service cost, plus interest. U.S. employee
account balances earn annual interest credits until
the employee begins receiving benefits. Non-U.S.
employees participate in local defined benefit plans
which are
local
jurisdiction. In addition to the defined benefit pension
plans, we have non-qualified unfunded SERPs that
provide certain officers with defined pension benefits
in excess of allowable qualified plan limits. State
Street Bank and certain of its U.S. subsidiaries also
participate in a post-retirement plan that provides
health care benefits for certain retired employees.
The total expense for these tax-qualified and non-
qualified plans was $27 million, $25 million and $8
million in 2021, 2020 and 2019, respectively.
funded as
in each
required
We recognize the funded status of our defined
benefit pension plans and other post-retirement
benefit plans, measured as the difference between
the fair value of the plan assets and the projected
and
equities
high-quality
benefit obligation, in the consolidated statement of
position. The assets held by the defined benefit
pension plans are largely made up of common,
collective funds that are liquid and invest principally in
U.S.
fixed-income
investments. The majority of these assets fall within
Level 2 of the fair value hierarchy. The benefit
obligations associated with our primary U.S. and non-
U.S. defined benefit plans, non-qualified unfunded
supplemental retirement plans and post-retirement
plans were $1.47 billion, $42 million and $3 million,
respectively, as of December 31, 2021 and $1.53
billion, $69 million and $4 million, respectively, as of
December 31, 2020. As the primary defined benefit
plans are frozen, the benefit obligation will only vary
over time as a result of changes in market interest
rates, the life expectancy of the plan participants and
payments made from the plans. The primary U.S. and
non-U.S. defined benefit pension plans were
overfunded by $49 million and underfunded by $15
million as of December 31, 2021 and 2020,
respectively.
supplemental
retirement plans were underfunded by $42 million and
$69 million as of December 31, 2021 and 2020,
respectively. The other post-retirement benefit plans
were underfunded by $3 million and $4 million as of
December 31, 2021 and 2020, respectively. The
underfunded status is included in other liabilities.
non-qualified
The
Defined Contribution Retirement Plans
We contribute to employer-sponsored U.S. and
non-U.S. defined contribution plans. Our contribution
to these plans was $171 million, $168 million and
$167 million in 2021, 2020 and 2019, respectively.
Note 20. Occupancy Expense and Information
Systems and Communications Expense
leasehold
Occupancy expense and information systems
and communications expense include depreciation of
buildings,
computer
hardware and software, equipment, furniture and
fixtures, and amortization of lease right-of-use assets.
Total depreciation and amortization expense in 2021,
2020 and 2019 was $859 million, $858 million and
$842 million, respectively.
improvements,
We use our incremental borrowing rate to
determine the present value of the lease payments
for finance and operating leases described below.
separate nonlease
Additionally, we do not
components such as real estate taxes and common
area maintenance from base lease payments.
As of December 31, 2021 and 2020, an
aggregate net book value of $135 million and $55
million, respectively, for the finance lease related to
our One Lincoln Street Boston headquarters was
recorded in premises and equipment, with the related
liability of $164 million and $103 million, respectively,
State Street Corporation | 175
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded in long-term debt, in our consolidated
statement of condition.
Finance lease right-of-use asset amortization is
recorded in occupancy expense on a straight-line
basis in our consolidated statement of income over
the respective lease term. As of December 31, 2021,
accumulated amortization of the finance lease right-
of-use asset was $101 million. Lease payments are
recorded as a reduction of the liability, with a portion
recorded as imputed interest expense. In 2021 and
2020, interest expense related to the finance lease
obligation reflected in NII was $6 million and $9
million, respectively.
As of December 31, 2021, an aggregate net
book value of $542 million for the operating lease
right-of-use assets is recorded in other assets, with
the related lease liability of $689 million recorded in
accrued expenses and other
in our
consolidated statement of condition.
liabilities
We have entered into non-cancellable operating
leases for premises and equipment. Nearly all of
these leases include renewal options, and only those
reasonably certain of being exercised are included in
the term of the lease. Costs for operating leases are
recorded on a straight-line basis which includes both
interest expense and right-of-use asset amortization.
Operating lease costs for office space are recorded in
occupancy expense. Costs related
to operating
leases for equipment are recorded in information
systems and communications expense.
As of December 31, 2021, we have an additional
operating lease, primarily for office space, that has
not yet commenced with approximately $455 million
of undiscounted future minimum lease payments.
This lease will commence in fiscal year 2023 with 15
year lease term. These future payments relate to the
new Boston headquarters lease executed in the first
quarter of 2019, replacing the One Lincoln Street
Boston property.
The
following
lease costs,
sublease rental income, cash flows and new leases
2021:
arising
table presents
transactions
lease
from
for
(In millions)
Finance lease:
Years Ended December 31,
2021
2020
Amortization of right-of-use assets
$
27 $
Interest on lease liabilities
Total finance lease expense
Sublease income
Net finance lease expense
Operating lease:
Operating lease expense
Sublease income
Net operating lease expense
6
33
(11)
22
147
(18)
129
Net lease expense
$
151 $
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from finance
leases
Operating cash flows from operating
leases
Financing cash flows from finance
leases
Right-of-use assets obtained in
exchange for new lease obligations:
$
6 $
198
47
Operating leases
Finance leases
$
69 $
108
20
9
29
(11)
18
169
(16)
153
171
9
192
33
38
—
The following table presents future minimum
lease payments under non-cancellable leases as of
December 31, 2021:
(In millions)
Operating
Leases
Finance
Leases
Total
2022
2023
2024
2025
2026
Thereafter
Total future minimum lease
payments
$
158 $
71 $
140
117
98
74
162
749
(60)
60
29
10
—
—
170
(6)
229
200
146
108
74
162
919
(66)
853
The following table presents details related to
remaining lease terms and discount rate as of
December 31, 2021 and 2020:
Weighted-average remaining
lease term (in years):
Finance leases
Operating leases
Weighted-average discount rate:
Finance leases
Operating leases
December 31,
2021
December 31,
2020
2.6
5.8
4 %
3 %
2.7
7.1
7 %
3 %
State Street Corporation | 176
None of our leases contain residual value
Less imputed interest
guarantees.
Total
$
689 $
164 $
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
321
114
73
75
43
19
51
Note 21. Expenses
The following table presents the components of
indicated:
the
expenses
periods
for
other
(In millions)
2021
2020
2019
Years Ended December 31,
Professional services
$
334 $
364 $
Sales advertising public relations
Regulatory fees and assessments
Securities processing
Bank operations
Insurance
Donations
Other
73
69
34
12
12
2
77
61
41
18
14
20
360
370
566
Total other expenses
$
896 $
965 $
1,262
Acquisition Costs
We recorded approximately $53 million of
acquisition costs in 2021 compared to $54 million in
2020 and $79 million
to our
acquisition of CRD.
recorded
approximately $13 million of acquisition costs in 2021
related to our planned acquisition of the BBH Investor
Services business.
in 2019, related
In addition, we
Restructuring and Repositioning Charges
Repositioning Charges
In 2021, we recorded a net repositioning benefit
of $3 million, consisting of $32 million release of
previously accrued severance charges, primarily due
to higher attrition and redeployment rates during the
COVID-19 pandemic, partially offset by $29 million of
occupancy charges related to footprint optimization.
recorded $133 million of
In 2020, we
repositioning charges,
including $82 million of
compensation and employee benefits expenses and
$51 million of occupancy costs, to further drive
automation
organizational
simplification enabling workforce rationalization and
to reduce our real estate footprint by approximately
13% of our total square footage.
processes
and
of
The following table presents aggregate activity
for repositioning charges and activity related to
previous Beacon restructuring charges for the periods
indicated:
Employee
Related
Costs
Real
Estate
Actions
Asset and
Other
Write-offs
Total
(In millions)
Accrual Balance at
December 31, 2018 $
Accruals for Beacon
Accruals for
Repositioning
Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2019
Accruals for Beacon
Accruals for
Repositioning
Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2020
Accruals for Beacon
Accruals for
Repositioning
Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2021 $
303 $
37 $
1 $
341
(2)
98
—
12
(209)
(42)
190
(4)
82
(78)
190
(1)
(32)
(89)
7
—
51
(52)
6
—
29
(29)
—
—
—
1
—
—
(1)
—
—
—
—
(2)
110
(251)
198
(4)
133
(131)
196
(1)
(3)
(118)
68 $
6 $
— $
74
Note 22. Income Taxes
for
income
taxes. Our objective
financial statements and
We use an asset-and-liability approach
is
to
account
to
recognize the amount of taxes payable or refundable
for the current year through charges or credits to the
current tax provision, and to recognize deferred tax
assets and liabilities for future tax consequences of
temporary differences between amounts reported in
their
our consolidated
respective tax bases. The measurement of tax assets
and liabilities is based on enacted tax laws and
applicable tax rates. The effects of a tax position on
our consolidated financial statements are recognized
when we believe it is more likely than not that the
position will be sustained. A valuation allowance is
established if it is considered more likely than not that
all or a portion of the deferred tax assets will not be
realized. Deferred tax assets and liabilities recorded
in our consolidated statement of condition are netted
within the same tax jurisdiction.
State Street Corporation | 177
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$
478 $
479 $
470
Restructuring charges and other reserves
The following table presents the components of
the periods
(benefit)
tax expense
for
income
indicated:
(In millions)
2021
2020
2019
Years Ended December 31,
Current:
Federal
State
Non-U.S.
Total current expense
Deferred:
Federal
State
Non-U.S.
Total deferred expense (benefit)
Total income tax expense
(benefit)
$
172 $
241 $
142
326
640
(98)
(61)
(3)
(162)
122
310
673
(168)
5
(31)
(194)
157
86
357
600
(6)
33
(157)
(130)
The following table presents a reconciliation of
the U.S. statutory income tax rate to our effective tax
rate based on income before income tax expense for
the periods indicated:
U.S. federal income tax rate
21.0 %
21.0 %
21.0 %
Years Ended December 31,
2021
2020
2019
Changes from statutory rate:
State taxes, net of federal benefit
Tax-exempt income
Business tax credits(1)
Foreign tax differential
Foreign legal entity restructuring
2.2
(1.1)
(4.1)
0.1
—
Foreign tax credit (benefits)/ limitations
(1.9)
Litigation expense
Other, net
Effective tax rate
3.8
(1.3)
(5.1)
(0.8)
—
(0.9)
—
(0.2)
3.4
(1.5)
(5.4)
(0.1)
(4.3)
2.2
1.6
0.4
—
(1.1)
15.1 %
16.5 %
17.3 %
(1) Business tax credits include low-income housing, production and
investment tax credits.
Beginning in 2018, the TCJA subjects a U.S.
shareholder to current tax on Global Intangible Low-
Taxed Income (GILTI) earned by certain foreign
subsidiaries. We have elected to recognize our tax on
GILTI as a period expense in the period the tax is
incurred. As such, we have included an estimate of
this liability in our estimated annual effective tax rate.
This adjustment increased our effective tax rate by
0.1%, 0.2% and 0.3% in 2021, 2020 and 2019,
respectively, which
the prior
"Foreign Tax Credit
reconciliation
(Benefits)/Limitations".
table under
reflected
in
is
foreign
Undistributed indefinitely reinvested earnings of
certain
to
subsidiaries
approximately $5.5 billion at December 31, 2021. As
a result, no provision has been recorded for state and
local or
If a
distribution were to occur, we would be subject to
state, local and to foreign withholding tax. It is
foreign withholding
amounted
income
taxes.
expected that any distribution will be exempt from
federal income tax. Although the foreign withholding
tax is generally creditable against U.S. federal income
tax, certain credit utilization limitations may result in a
net cost.
The
following
significant
components of our gross deferred tax assets and
gross deferred tax liabilities as of the dates indicated:
table presents
(In millions)
Deferred tax assets:
Other amortizable assets
Tax credit carryforwards
Lease obligations
Deferred compensation
NOL and other carryforwards
Pension plan
Foreign currency translation
Unrealized losses on investment securities,
net
Total deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax assets, net of valuation
allowance
Deferred tax liabilities:
Fixed and intangible assets
Investment basis differences
Right-of-use Assets
Unrealized gains on investment securities,
net
Other
$
$
December 31,
2021
2020
$
323 $
526
217
158
88
118
28
16
17
385
564
243
110
114
101
56
3
—
1,491
(250)
1,576
(295)
1,241 $
1,281
601 $
200
172
—
58
765
269
187
306
51
Total deferred tax liabilities
$
1,031 $
1,578
The table below summarizes the deferred tax
assets and related valuation allowances recognized
2021:
as
December
31,
of
(In millions)
Other amortizable
assets
Tax credits
NOLs - Non-U.S.
NOLs - U.S.
Other carryforwards
Deferred
Tax Asset
Valuation
Allowance
Expiration
$
323 $
(185) None
526
92
22
4
— 2033-2041
(45) 2028-2041, None
(16) 2022-2040
(4) None
Management considers the valuation allowance
adequate to reduce the total deferred tax assets to an
aggregate amount that will more likely than not be
realized. Management has determined
that a
valuation allowance is not required for the remaining
deferred tax assets because it is more likely than not
that there will be sufficient taxable income of the
appropriate nature within the carryforward periods to
realize these assets.
At December 31, 2021, 2020 and 2019, the
gross unrecognized tax benefits, excluding interest,
were $252 million, $308 million and $149 million,
respectively. Of this, the amounts that would reduce
the effective tax rate, if recognized, are $243 million,
State Street Corporation | 178
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$294 million and $140 million, respectively. The
reduction in the effective tax rate includes the federal
benefit for unrecognized state tax benefits.
The following table presents the computation of
basic and diluted earnings per common share for the
indicated:
periods
The following table presents activity related to
unrecognized tax benefits as of the dates indicated:
(In millions)
Beginning balance
Decrease related to agreements with
tax authorities
Increase related to tax positions
taken during current year
Increase related to tax positions
taken during prior years
Decreases related to a lapse of the
applicable statute of limitations
December 31,
2021
2020
2019
$
308 $
149 $
108
(130)
50
42
—
47
137
(17)
13
49
(18)
(25)
(4)
Ending balance
$
252 $
308 $
149
It is reasonably possible that of the $252 million
of unrecognized tax benefits as of December 31,
2021, up to $71 million could decrease within the next
12 months due to agreements with tax authorities and
the expiration of statutes of limitations. Management
believes that we have sufficient accrued liabilities as
of December 31, 2021 for tax exposures and related
interest expense.
Income tax expense included related interest
and penalties of approximately $6 million, $6 million
and $5 million in 2021, 2020 and 2019, respectively.
Total
penalties were
approximately $9 million, $14 million and $10 million
as of December 31, 2021, 2020 and 2019,
respectively.
accrued
interest
and
Note 23. Earnings Per Common Share
Basic EPS is calculated pursuant to the two-
class method, by dividing net income available to
the weighted-average
common shareholders by
common shares outstanding during
the period.
Diluted EPS is calculated pursuant to the two-class
method, by dividing net income available to common
shareholders by the total weighted-average number
of common shares outstanding for the period plus the
shares representing the dilutive effect of equity-based
awards. The effect of equity-based awards
is
excluded from the calculation of diluted EPS in
periods in which their effect would be anti-dilutive.
The two-class method requires the allocation of
undistributed net
income between common and
participating shareholders. Net income available to
common shareholders, presented separately in our
consolidated statement of income, is the basis for the
calculation of both basic and diluted EPS.
Participating securities are composed of unvested
and fully vested SERP shares and fully vested
deferred director stock awards, which are equity-
based awards that contain non-forfeitable rights to
dividends, and are considered to participate with the
common stock in undistributed earnings.
(Dollars in millions, except per
share amounts)
Net income
Less:
Years Ended December 31,
2021
2020
2019
$
2,693
$
2,420
$
2,242
Preferred stock dividends
(119)
(162)
(232)
Dividends and undistributed
earnings allocated to participating
securities(1)
Net income available to common
shareholders
Average common shares
outstanding (In thousands):
(2)
(1)
(1)
$
2,572
$
2,257
$
2,009
Basic average common shares
352,565
352,865
369,911
Effect of dilutive securities: equity-
based awards
5,397
4,241
3,755
Diluted average common shares
357,962
357,106
373,666
Anti-dilutive securities(2)
Earnings per common share:
3
1,066
2,052
Basic
Diluted(3)
$
7.30
$
6.40
$
7.19
6.32
5.43
5.38
(1) Represents the portion of net income available to common equity allocated to
participating securities, composed of unvested and fully vested SERP (Supplemental
executive retirement plans) shares and fully vested deferred director stock awards, which
are equity-based awards that contain non-forfeitable rights to dividends, and are
considered to participate with the common stock in undistributed earnings.
(2) Represents equity-based awards outstanding but not included in the computation of
diluted average common shares, because their effect was anti-dilutive. Additional
information about equity-based awards is provided in Note 18.
(3) Calculations reflect allocation of earnings to participating securities using the two-class
method, as this computation is more dilutive than the treasury stock method.
Note 24. Line of Business Information
Our operations are organized into two lines of
Investment
Investment Servicing and
business:
Management, which are defined based on products
and services provided. The results of operations for
these
lines of business are not necessarily
comparable with those of other companies, including
companies in the financial services industry.
funds and other
Investment Servicing,
through State Street
Institutional Services, State Street Global Markets,
State Street Digital and CRD, provides services for
institutional clients, including mutual funds, collective
investment
investment pools,
corporate and public retirement plans, insurance
companies, investment managers, foundations and
endowments worldwide. Products include: custody;
product accounting; daily pricing and administration;
master trust and master custody; depotbank services
(a fund oversight role created by non-U.S. regulation);
record-keeping;
foreign
exchange, brokerage and other trading services;
securities finance and enhanced custody products;
deposit and short-term investment facilities; loans and
lease financing; investment manager and alternative
investment manager
outsourcing;
performance, risk and compliance analytics; and
financial data management to support institutional
investors.
cash management;
operations
State Street Corporation | 179
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
through
Included within our Investment Servicing line of
business is CRD, which we acquired in 2018. The
Charles River Investment Management system is a
technology offering which is designed to automate
and simplify the institutional investment process
across asset classes, from portfolio management and
trading and post-trade
risk analytics
settlement, with integrated compliance and managed
data throughout. With the acquisition of CRD, we took
the first step in building our front-to-back platform,
State Street Alpha. Today our State Street Alpha
platform combines portfolio management, trading and
execution, analytics and compliance
tools, and
advanced data aggregation and integration with other
industry platforms and providers. In 2021, we further
expanded our technology offering with the acquisition
of Mercatus, Inc., enabling the launch of Alpha for
Private Markets.
In 2021, we established State Street Digital to
focus on the development of digital assets and
technologies, including crypto, central bank digital
currency, blockchain and tokenization, including the
evolution of a new integrated business and digital
operating model designed to support our clients'
digital investment cycle.
Investment Management, through State Street
Global Advisors, provides a broad
range of
investment management strategies and products for
our clients. Our investment management strategies
and products span the risk/reward spectrum for
equity, fixed income and cash assets, including core
and enhanced indexing, multi-asset strategies, active
quantitative and fundamental active capabilities and
alternative
is
currently primarily weighted to indexed strategies. In
addition, we provide a breadth of services and
solutions, including ESG investing, defined benefit
and defined contribution and Global Fiduciary
Solutions (formerly Outsourced Chief
Investment
Officer). State Street Global Advisors is also a
provider of ETFs, including the SPDR® ETF brand.
investment strategies. Our AUM
Our investment servicing strategy is to focus on
total client relationships and the full integration of our
products and services across our client base through
cross-selling opportunities. In general, our clients will
use a combination of services, depending on their
needs, rather than one product or service. For
instance, a custody client may purchase securities
finance and cash management services from different
business units. Products and services that we provide
to our clients are parts of an integrated offering to
these clients. We price our products and services on
the basis of overall client relationships and other
factors; as a result, revenue may not necessarily
reflect the stand-alone market price of these products
and services within the business lines in the same
way it would for separate business entities.
the
lines,
including
Investment Servicing and
Our servicing and management fee revenue
Investment
from
Management business
foreign
exchange trading services and securities finance
activities, represents approximately 70% to 80% of
our consolidated total revenue. The remaining 20% to
30% is composed of software and processing fees,
including CRD, as well as NII, which is largely
generated by our investment of client deposits, short-
term borrowings and long-term debt in a variety of
assets, and net gains (losses) related to investment
securities. These other revenue types are generally
fully allocated to, or reside in, Investment Servicing
and Investment Management.
to our
lines of business
Revenue and expenses are directly charged or
through
allocated
information systems. Assets and
management
liabilities are allocated according to policies that
support management’s strategic and tactical goals.
Capital is allocated based on the relative risks and
capital requirements inherent in each business line,
along with management judgment. Capital allocations
may not be representative of the capital that might be
required if these lines of business were separate
business entities.
The following is a summary of our line of
business results "Other" column for the periods
indicated.
(Dollars in millions)
2021
Other
2020
2019
Years Ended December 31,
Other Income
$
(111) $
— $
Net repositioning charges
Net acquisition and
costs
restructuring
Legal and related expenses
Deferred incentive compensation
expense acceleration
Other expenses
Total
(3)
65
18
147
35
133
50
(9)
—
—
$
151 $
174 $
359
—
110
77
172
—
—
for
The following is a summary of our line of
business results
indicated. The
the periods
"Other" columns represent certain costs incurred that
are not allocated to our two lines of business,
including repositioning charges, acquisition costs and
certain legal accruals. In addition, the acceleration of
deferred compensation of $147 million in 2021 was
not allocated to our two lines of business. Prior
reported
for
comparative purposes,
to management
changes in methodologies associated with allocations
of revenue and expenses to lines of business in 2021.
reclassifications,
related
results
reflect
State Street Corporation | 180
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment
Servicing
Investment
Management
Years Ended December 31,
(Dollars in millions)
2021
2020
2019
2021
2020
2019
2021
Other
2020
2019
2021
Total
2020
2019
Servicing fees
$ 5,549
$ 5,167
$ 5,074
$ —
$ —
$ —
$
Management fees
Foreign exchange
trading services
Securities finance
Software and processing
fees(1)
—
—
—
2,053
1,880
1,824
1,149
1,299
402
779
342
706
974
462
691
62
14
4
64
14
27
84
9
29
Total fee revenue
7,879
7,514
7,201
2,133
1,985
1,946
Net interest income
1,919
2,211
2,590
(14)
(11)
(24)
Total other income
(1)
4
43
—
—
—
Total revenue
9,797
9,729
9,834
2,119
1,974
1,922
Provision for credit
losses
(33)
88
10
—
—
—
Total expenses
7,182
7,071
7,140
1,445
1,471
1,535
$
$
—
—
—
—
—
—
—
111
111
—
262
—
—
—
—
—
—
—
—
—
—
174
—
—
—
—
—
—
—
—
—
—
$ 5,549
$ 5,167
$ 5,074
2,053
1,880
1,824
1,211
1,363
1,058
416
783
356
733
471
720
10,012
9,499
9,147
1,905
2,200
2,566
110
4
43
12,027
11,703
11,756
(33)
88
10
359
8,889
8,716
9,034
Income before income
tax expense
$ 2,648
$ 2,570
$ 2,684
$ 674
$ 503
$ 387
$
(151) $
(174) $
(359) $ 3,171
$ 2,899
$ 2,712
Pre-tax margin
27 %
26 %
27 %
32 %
25 %
20 %
26 %
25 %
23 %
Average assets (in
billions)
$ 296.5
$ 266.4
$ 220.3
$ 3.2
$ 2.9
$ 3.0
$ 299.7
$ 269.3
$ 223.3
(1) Investment Management includes other revenue items that are primarily driven by equity market movements.
Note 25. Revenue from Contracts with Customers
We account for revenue from contracts with customers in accordance with ASC 606. The amount of revenue
that we recognize is measured based on the consideration specified in contracts with our customers, and excludes
taxes collected from customers subsequently remitted to governmental authorities. We recognize revenue when a
performance obligation is satisfied over time as the services are performed or at a point in time depending on the
nature of the services provided as further discussed below. Revenue recognition guidance related to contracts with
customers excludes our NII, revenue earned on security lending transactions entered into as principal, realized
gains/losses on securities, revenue earned on foreign exchange activity, loans and related fees, and gains/losses
on hedging and derivatives, to which we apply other applicable U.S. GAAP guidance.
For contracts with multiple performance obligations, or contracts that have been combined, we allocate the
contracts' transaction price to each performance obligation using our best estimate of the standalone selling price.
Our contractual fees are negotiated on a customer by customer basis and are representative of standalone selling
price utilized for allocating revenue when there are multiple performance obligations.
Substantially all of our services are provided as a distinct series of daily performance obligations that the
customer simultaneously benefits from as they are performed. Payments may be made to third party service
providers and the expense is recognized gross when we control those services as we are deemed the principal.
Contract durations may vary from short to long- term or may be open ended. Termination notice periods are in
line with general market practice and typically do not include termination penalties. Therefore, for substantially all of
our revenues, the duration of the contract and the enforceable rights and obligations do not extend beyond the
services that are performed daily or at the transaction level. In instances where we have substantive termination
penalties, the duration of the contract may extend through the date of substantive termination penalties.
Investment Servicing
Revenue from contracts with customers related to servicing fees is recognized over time as our customers
benefit from the custody, administration, accounting, transfer agency and other related asset services as they are
performed. At contract inception, no revenue is estimated as the fees are dependent on assets under custody and/
or administration and/or actual transactions which are susceptible to market factors outside of our control.
Therefore, revenue is recognized using a time-based output method as the customers benefit from the services
over time and as the assets under custody or transactions are known or determinable during each reporting period
based on contractual fee schedules. Payments made to third party service providers, such as sub-custodians, are
generally recognized gross as we control those services and are deemed to be a principal in such arrangements.
Foreign exchange trading services revenue includes revenue generated from providing access and use of
electronic trading platforms and other trading, transition management and brokerage services. Electronic FX
services are dependent on the volume of actual transactions initiated through our electronic exchange platforms.
State Street Corporation | 181
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue is recognized over time using a time-based measure as access to, and use of, the electronic exchange
platforms is made available to the customer and the activity is determinable. Revenue related to other trading,
transition management and brokerage services is recognized when the customer obtains the benefit of such
services which may be over time or at a point in time upon trade execution.
Securities finance revenue is related to services for providing agency lending programs to State Street Global
Advisors managed investment funds and third- party investment managers and asset owners. This securities
finance revenue is recognized over time using a time-based measure as our customers benefit from these lending
services over time.
Revenue related to the front office solutions provided by CRD is primarily driven by the sale of licenses and
software as service arrangements, including professional services such as consulting and implementation services,
software support and maintenance. Revenue for a sale of software to be installed on premise is recognized at a
point in time when the customer benefits from obtaining access to and use of the software license. Revenue for a
SaaS related arrangement is recognized over time as services are provided.
Investment Management
Revenue from contracts with customers related to investment management, investment research and
investment advisory services provided through State Street Global Advisors is recognized over time as our
customers benefit from the services as they are performed. Substantially all of our investment management fees are
determined by the value of assets under management and the investment strategies employed. At contract
inception, no revenue is estimated as the fees are dependent on assets under management which are susceptible
to market factors outside of our control.
Therefore, substantially all of our Investment Management services revenue is recognized using a time-based
output method as the customers benefit from the services over time and as the assets under management are
known or determinable during each reporting period based on contractual fee schedules. Payments made to third
party service providers, such as payments to others in unitary fee arrangements, are generally recognized on a
gross basis when State Street Global Advisors controls those services and is deemed to be a principal in such
transactions.
State Street Corporation | 182
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue by category
In the following table, revenue is disaggregated by our two lines of business and by revenue stream for which
the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The
amounts in the "Other" columns were not allocated to our business lines.
(Dollars in millions)
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income
Total other income
Total revenue
(Dollars in millions)
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income
Total other income
Total revenue
Year Ended December 31, 2021
Investment Servicing
Investment Management
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
Other
All other
revenue
Total
Total
2021
$ 5,549 $
— $ 5,549 $
— $
— $
— $
— $
— $
— $ 5,549
—
342
235
519
6,645
—
—
—
807
167
260
1,234
1,919
—
2,053
1,149
402
779
7,879
1,919
62
—
—
2,115
—
—
(1)
(1)
—
—
14
4
18
(14)
—
2,053
62
14
4
2,133
(14)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
111
111
2,053
1,211
416
783
10,012
1,905
110
$ 6,645 $ 3,152 $ 9,797 $ 2,115 $
4 $ 2,119 $
— $
111 $
111 $ 12,027
Year Ended December 31, 2020
Investment Servicing
Investment Management
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
Other
All other
revenue
Total
Total
2020
$ 5,167 $
— $ 5,167 $
— $
— $
— $
— $
— $
— $ 5,167
—
377
212
487
6,243
—
—
—
922
130
219
1,271
2,211
4
—
1,880
1,299
342
706
7,514
2,211
4
64
—
—
1,944
—
—
—
—
14
27
41
(11)
—
1,880
64
14
27
1,985
(11)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,880
1,363
356
733
9,499
2,200
4
$ 6,243 $ 3,486 $ 9,729 $ 1,944 $
30 $ 1,974 $
— $
— $
— $ 11,703
(Dollars in millions)
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income
Total other income
Total revenue
Year Ended December 31, 2019
Investment Servicing
Investment Management
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
Other
All other
revenue
Total
Total
2019
$ 5,074 $
— $ 5,074 $
— $
— $
— $
— $
— $
— $ 5,074
—
346
259
456
6,135
—
—
—
628
203
235
1,066
2,590
43
—
974
462
691
7,201
2,590
43
1,824
84
—
—
1,908
—
—
—
—
9
29
38
(24)
—
1,824
84
9
29
1,946
(24)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,824
1,058
471
720
9,147
2,566
43
$ 6,135 $ 3,699 $ 9,834 $ 1,908 $
14 $ 1,922 $
— $
— $
— $ 11,756
Contract balances and contract costs
As of December 31, 2021 and December 31, 2020, net receivables of $2.76 billion and $2.68 billion,
respectively, are included in accrued interest and fees receivable, representing amounts billed or currently billable
related to revenue from contracts with customers. As performance obligations are satisfied, we have an
unconditional right to payment and billing is generally performed monthly; therefore, we do not have significant
contract assets or liabilities.
No adjustments are made to the promised amount of consideration for the effects of a significant financing
component as the period between when we transfer a promised service to a customer and when the customer pays
for that service is expected to be one year or less.
State Street Corporation | 183
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 26. Non-U.S. Activities
We define our non-U.S. activities as those revenue-producing business activities that arise from clients which
are generally serviced or managed outside the U.S. Due to the integrated nature of our business, precise
segregation of our U.S. and non-U.S. activities is not possible.
Subjective estimates, assumptions and other judgments are applied to quantify the financial results and assets
related to our non-U.S. activities, including our application of funds transfer pricing, our asset and liability
management policies and our allocation of certain indirect corporate expenses. Management periodically reviews
and updates its processes for quantifying the financial results and assets related to our non-U.S. activities.
The
following
table presents our U.S. and non-U.S.
financial results
for
the periods
indicated:
(In millions)
Total revenue
Income before income tax
expense
Years Ended December 31,
Non-U.S.(1)
2021
U.S.
Total
Non-U.S.(1)
2020
U.S.
Total
Non-U.S.(1)
2019
U.S.
Total
$
5,371 $ 6,656 $ 12,027 $
5,177 $ 6,526 $ 11,703 $
5,230 $ 6,526 $ 11,756
1,522
1,649
3,171
1,326
1,573
2,899
1,248
1,464
2,712
(1) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
Non-U.S. assets were $102.61 billion and $111.30 billion as of December 31, 2021 and 2020, respectively.
Note 27. Parent Company Financial Statements
The following tables present the financial statements of the Parent Company without consolidation of its
banking and non-banking subsidiaries, as of and for the years indicated:
Statement of Income - Parent Company
(In millions)
Years Ended December 31,
2021
2020
2019
Cash dividends from consolidated banking subsidiary
$
— $
2,721 $
3,300
Cash dividends from consolidated non-banking subsidiaries and unconsolidated
entities
Other, net
Total revenue
Interest expense
Other expenses
Total expenses
Income tax (benefit)
Income (Loss) before equity in undistributed income of consolidated subsidiaries and
unconsolidated entities
Equity in undistributed income of consolidated subsidiaries and unconsolidated
entities:
Consolidated banking subsidiary
Consolidated non-banking subsidiaries and unconsolidated entities
Net income
170
49
219
239
315
554
(153)
(182)
118
92
2,931
324
172
496
(109)
285
149
3,734
415
108
523
(91)
2,544
3,302
2,657
218
(277)
153
$
2,693 $
2,420 $
(1,070)
10
2,242
State Street Corporation | 184
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Condition - Parent Company
(In millions)
Assets:
As of December 31,
2021
2020
Interest-bearing deposits with consolidated banking subsidiary
$
482 $
Trading account assets
Investment securities available-for-sale
Investments in subsidiaries:
Consolidated banking subsidiary
Consolidated non-banking subsidiaries
Unconsolidated entities
Notes and other receivables from:
Consolidated banking subsidiary
Consolidated non-banking subsidiaries and unconsolidated entities
Other assets
Total assets
Liabilities:
Notes and other payables to consolidated banking and non-banking subsidiaries and unconsolidated
entities
$
$
Accrued expenses and other liabilities
Long-term debt
Total liabilities
Shareholders’ equity
440
150
27,821
9,060
122
80
5,029
256
2,303 $
523
13,250
16,076
27,364
43,440 $
40,382
492
412
100
26,204
8,807
124
81
3,885
277
104
453
13,625
14,182
26,200
40,382
Total liabilities and shareholders’ equity
$
43,440 $
Statement of Cash Flows - Parent Company
(In millions)
Years Ended December 31,
2021
2020
2019
Net cash (used in) provided by operating activities
$
(116) $
3,513 $
2,684
Investing Activities:
Net decrease (increase) in interest-bearing deposits with consolidated banking
subsidiary
Proceeds from sales and maturities of available-for-sale securities
Purchases of available-for-sale securities
Investments in consolidated banking and non-banking subsidiaries
Sale or repayment of investment in consolidated banking and non-banking
subsidiaries
Net cash provided by (used in) investing activities
Financing Activities:
Proceeds from issuance of long-term debt, net of issuance costs
Payments for long-term debt
Payments for redemption of preferred stock
Proceeds from issuance of common stock, net of issuance costs
Repurchases of common stock
Repurchases of common stock for employee tax withholding
Payments for cash dividends
Net cash (used in) provided by financing activities
Net change
Cash and due from banks at beginning of year
Cash and due from banks at end of year
Note 28. Subsequent Events
10
525
(575)
(6,288)
7,006
678
1,343
(1,500)
(500)
1,900
(900)
(39)
(866)
(562)
—
—
(64)
1,000
(849)
(7,406)
4,999
(2,320)
2,489
(1,700)
(500)
—
(515)
(78)
(889)
(1,193)
—
—
$
— $
— $
58
900
(921)
(6,165)
5,345
(783)
1,495
(50)
(750)
—
(1,585)
(81)
(930)
(1,901)
—
—
—
On February 7, 2022, we issued $300 million aggregate principal amount of fixed-to-floating rate senior notes
due 2026, $650 million aggregate principal amount of fixed-to-floating rate senior notes due 2028 and $550 million
aggregate principal amount of fixed-to-floating rate senior notes due 2033.
State Street Corporation | 185
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential
(Unaudited)
The following table presents consolidated average statements of condition and NII for the years indicated:
(Dollars in millions; fully
taxable-equivalent basis)
Assets:
2021
2020
2019
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Years Ended December 31,
Interest-bearing deposits with U.S. banks
$
28,584 $
41
.14 % $
30,866 $
101
.33 % $
16,815 $
360
2.14 %
Interest-bearing deposits with non-U.S. banks
Securities purchased under resale agreements
Trading account assets
Investment securities:
U.S. Treasury and federal agencies(1)
State and political subdivisions(1)
Other investments
Investment securities held-to-maturity
purchased under money market
liquidity facility
Loans
Other interest-earning assets
Total interest-earning assets(1)
Cash and due from banks
Other assets
Total assets
Liabilities and shareholders’ equity:
Interest-bearing deposits:
Time
Savings
Non-U.S.
Total interest-bearing deposits
Securities sold under repurchase agreements
Short-term borrowings under money
market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Total interest-bearing liabilities
Non-interest-bearing deposits:
Special time
Demand
Non-U.S.(2)
Other liabilities
Shareholders’ equity
260,035
1,921
5,057
34,651
$ 299,743
—
10
(273)
(263)
—
4
2
219
41
3
$
— $
104,848
82,126
186,974
667
315
788
13,383
5,486
207,613
—
47,747
683
17,615
26,085
61,412
4,193
752
66,195
1,451
43,770
314
31,009
22,355
(56)
(.09)
27
—
873
44
331
4
640
17
.63
.01
1.32
3.06
.76
1.35
2.07
.08
.74
45,722
3,452
878
60,816
1,717
38,459
8,183
27,525
11,256
(25)
126
—
(.06)
3.64
—
1,174
51
366
117
627
55
1.93
2.95
.95
1.43
2.28
.49
31,685
2,506
884
56,639
1,869
33,260
—
24,073
14,160
228,874
2,592
1.13
181,891
3,960
3,849
36,611
$ 269,334
3,390
38,053
$ 223,334
23
91
(231)
(117)
4
101
18
312
57
375
— % $
7,114 $
.01
(.33)
(.14)
—
1.21
.21
1.64
.75
—
80,330
68,806
156,250
2,615
8,207
2,226
14,371
3,176
186,845
7,196
29,187
592
20,464
25,050
.32 % $
20,443 $
.11
(.34)
(.07)
.14
1.22
.78
2.17
1.82
.20
47,104
61,301
128,848
1,616
—
1,524
11,474
4,103
147,565
1,375
15,338
13,552
524
21,299
25,056
56
.18
364
14.54
1
.11
1,443
62
504
—
775
395
222
317
124
663
31
—
21
414
246
2.55
3.31
1.51
—
3.22
2.79
2.18
1.08 %
.67
.20
.51
1.90
—
1.37
3.61
6.00
.93
Total liabilities and shareholders’ equity
$ 299,743
$ 269,334
$ 223,334
Net interest income, fully taxable-equivalent
basis
Excess of rate earned over rate paid
Net interest margin(3)
$ 1,918
$ 2,217
$ 2,585
.74 %
.74
.93 %
.97
1.25 %
1.42
(1) Fully taxable-equivalent revenue is a method of presentation in which the tax savings achieved by investing in tax-exempt investment securities and certain leases are included
in interest income with a corresponding charge to income tax expense. This method facilitates the comparison of the performance of these assets. The adjustments are computed
using a federal income tax rate of 21% for periods ending in 2021, 2020 and 2019, adjusted for applicable state income taxes, net of the related federal tax benefit. The fully
taxable-equivalent adjustments included in interest income presented above were $13 million, $17 million and $19 million for the years ended December 31, 2021, 2020 and 2019,
respectively, and were substantially related to tax-exempt securities (state and political subdivisions).
(2) Non-U.S. non-interest-bearing deposits were $968 million, $784 million and $820 million as of December 31, 2021, 2020 and 2019, respectively.
(3) NIM is calculated by dividing fully taxable-equivalent NII by average total interest-earning assets.
State Street Corporation | 186
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (CONTINUED)
The following table summarizes changes in fully taxable-equivalent interest income and interest expense due
to changes in volume of interest-earning assets and interest-bearing liabilities, and due to changes in interest rates.
Changes attributed to both volumes and rates have been allocated based on the proportion of change in each
category.
Years Ended December 31,
(Dollars in millions; fully
taxable-equivalent basis)
Interest income related to:
2021 Compared to 2020
2020 Compared to 2019
Change in
Volume
Change in
Rate
Net (Decrease)
Increase
Change in
Volume
Change in
Rate
Net (Decrease)
Increase
Interest-bearing deposits with U.S. banks
$
(8) $
(52) $
(60) $
301 $
(560) $
Interest-bearing deposits with non-U.S. banks
Securities purchased under resale agreements
Trading account assets
Investment securities:
U.S. Treasury and federal agencies
State and political subdivisions
Other investments
Investment securities held-to-maturity
purchased under money market
liquidity facility
Loans
Other interest-earning assets
Total interest-earning assets
Interest expense related to:
Deposits:
Time
Savings
Non-U.S.
Securities sold under repurchase agreements
Short-term borrowings under money
market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Total interest-bearing liabilities
Net interest income
(9)
27
—
104
(8)
50
(113)
79
54
176
(23)
28
(45)
(3)
(96)
(11)
(21)
42
$
(129)
305 $
(22)
(126)
—
(405)
1
(85)
—
(66)
(92)
(847)
—
(109)
3
(1)
(1)
(5)
(72)
(58)
(243)
(604) $
(31)
(99)
—
(301)
(7)
(35)
(113)
13
(38)
(671)
(23)
(81)
(42)
(4)
(97)
(16)
(93)
(16)
(372)
(299) $
25
138
—
107
(5)
79
—
111
(81)
675
(144)
224
15
19
—
10
105
(56)
173
(106)
(376)
(1)
(376)
(6)
(217)
117
(259)
(259)
(55)
(450)
(370)
(46)
101
(13)
(207)
(133)
(1,173)
502 $
(870) $
(259)
(81)
(238)
(1)
(269)
(11)
(138)
117
(148)
(340)
(199)
(226)
(355)
(27)
101
(3)
(102)
(189)
(1,000)
(368)
(2,043)
(1,368)
State Street Corporation | 187
ACRONYMS
Asset-backed securities
Available-for-sale
Anti-money laundering
IDI
LCR(1)
LIHTC
Insured Depository Institution
Liquidity coverage ratio
Low income housing tax credits
Accumulated other comprehensive income (loss)
LDA model
Loss distribution approach model
Accounting Standards Update
AUC/A
Assets under custody and/or administration
Assets under management
Brown Brothers Harriman & Co
Business Conduct Committee
Basis points
Capital adequacy process
Comprehensive Capital Analysis and Review
Current Expected Credit Loss
Common equity tier 1
Commodity Futures Trading Commission
Corporate Information Security
Collateralized Loan Obligation
Credit and Market Risk Committee
Committee of Sponsoring Organizations of the
Treadway Commission
Charles River Development
Chief Risk Officer
Credit valuation adjustment
Department of Justice
Department of Labor
Examining and Audit Committee
European Central Bank
LIBOR
LTD
MBS
MMLF
MRAC
MRC
MRM
MVG
NII
NIM
NOL
NSFR(1)
OCC
ORM
OTC
OTTI
PCA
PCAOB
PD(1)
P&L
RC
RWA(1)
London Interbank Offered Rate
Long-term debt
Mortgage-backed securities
Money Market Mutual Fund Liquidity Facility
Management Risk and Capital Committee
Model Risk Committee
Model Risk Management
Model Validation Group
Net interest income
Net interest margin
Net Operating Loss
Net stable funding ratio
Office of the Comptroller of the Currency
Operational risk management
Over-the-counter
Other-than-temporary-impairment
Prompt corrective action
Public Company Accounting Oversight Board
Probability-of-default
Profit-and-loss
Risk Committee
Risk-weighted asset
Economic Growth, Regulatory Relief, and Consumer
Protection Act
SA-CCR
Standardized approach for counterparty credit risk
Earnings per share
Enterprise Risk Management
Environmental, social and governance
Exchange-Traded Fund
Economic value of equity
Federal Deposit Insurance Corporation
Federal Home Loan Bank of Boston
Fixed Income Clearing Corporation
Fully taxable-equivalent
Financial Stability Oversight Council
Foreign exchange
Generally accepted accounting principles
Global credit review
General data protection regulation
Global systemically important bank
High-quality liquid assets
Human Resources Committee
Held-to-maturity
SCB
SEC
SIFI
SLB
SLR(1)
SPDR
Stress Capital Buffer
Securities and Exchange Commission
Systemically important financial institutions
Stress Leverage Buffer
Supplementary leverage ratio
Spider; Standard and Poor's depository receipt
SPOE Strategy Single Point of Entry Strategy
SSIF
TCJA
TLAC(1)
TOPS
TORC
UCITS
UOM
VaR
VIE
WD
State Street Intermediate Funding, LLC
Tax Cuts and Jobs Act
Total loss-absorbing capacity
Technology and Operations Committee
Technology and Operational Risk Committee
Undertakings for Collective Investments in
Transferable Securities
Unit of measure
Value-at-Risk
Variable interest entity
Withdrawn
ABS
AFS
AML
AOCI
ASU
AUM
BBH
BCC
bps
CAP
CCAR
CECL
CET1(1)
CFTC
CIS
CLO
CMRC
COSO
CRD
CRO
CVA
DOJ
DOL
E&A
Committee
ECB
EGRRCPA
EPS
ERM
ESG
ETF
EVE
FDIC
FHLB
FICC
FTE
FSOC
FX
GAAP
GCR
GDPR
G-SIB
HQLA(1)
HRC
HTM
(1) As defined by the applicable U.S. regulations.
State Street Corporation | 188
GLOSSARY
Asset-backed securities: A financial security backed by collateralized
assets, other than real estate or mortgage backed securities.
Assets under custody and/or administration: Assets that we hold
directly or indirectly on behalf of clients under a safekeeping or
custody arrangement or for which we provide administrative services
for clients. To the extent that we provide more than one AUC/A service
(including back and middle office services) for a client’s assets, the
value of the asset is only counted once in the total amount of AUC/A.
Assets under management: The total market value of client assets
for which we provide investment management strategy services,
advisory services and/or distribution services generating management
fees based on a percentage of the assets’ market values. These client
assets are not included on our balance sheet. Assets under
management include managed assets lost but not liquidated. Lost
business occurs from time to time and it is difficult to predict the timing
of client behavior in transitioning these assets as the timing can vary
significantly.
Beacon: A multi-year program, announced in October 2015, to create
cost efficiencies through changes in our operational processes and to
further digitize our processes and interfaces with our clients.
Certificates of deposit: A savings certificate with a fixed maturity
date, specified fixed interest rate and can be issued in any
denomination aside from minimum investment requirements. A CD
restricts access to the funds until the maturity date of the investment.
Collateralized loan obligations: A loan or security backed by a pool
of debt, primarily senior secured leveraged loans. CLOs are similar to
collateralized mortgage obligations, except for the different type of
underlying loan. With a CLO, the investor receives scheduled loan or
debt payments from the underlying loans, assuming most of the risk in
the event borrowers default, but is offered greater diversity and the
potential for higher-than-average returns.
Commercial real estate: Property intended to generate profit from
capital gains or rental income. CRE loans are term loans secured by
commercial and multifamily properties. We seek CRE loans with
strong competitive positions in major domestic markets, stable cash
flows, modest leverage and experienced institutional ownership.
Deposit beta: A measure of how much of an interest rate increase is
expected to be passed on to client interest-bearing accounts, on
average.
Depot bank: A German term, specified by the country's law on
investment companies, which essentially corresponds to 'custodian'.
Doubtful: Doubtful loans and leases meet the same definition of
substandard loans and leases (i.e., well-defined weaknesses that
jeopardize repayment with the possibility that we will sustain some
loss) with the added characteristic that the weaknesses make
collection or liquidation in full highly questionable and improbable.
High-quality liquid assets: Cash or assets that can be converted into
cash at little or no loss of value in private markets and are considered
unencumbered.
Investment grade: A rating of loans and leases to counterparties with
strong credit quality and low expected credit risk and probability of
default. It applies to counterparties with a strong capacity to support
the timely repayment of any financial commitment.
Liquidity coverage ratio: The ratio of encumbered high-quality liquid
assets divided by expected total net cash outflows over a 30-day stress
period. A Basel III framework requirement for banks and bank holding
companies to measure liquidity, it is designed to ensure that certain
banking institutions, including us, maintain a minimum amount of
unencumbered HQLA sufficient to withstand the net cash outflow under
a hypothetical standardized acute liquidity stress scenario for a 30-day
stress period.
Net asset value: The amount of net assets attributable to each share/
unit of the fund at a specific date or time.
Net stable funding ratio: The ratio of the amount of available stable
funding relative to the amount of required stable funding. This ratio
should be equal to at least 100% on an ongoing basis.
Other-than-temporary-impairment: Impairment charge taken on a
security whose fair value has fallen below its carrying value on balance
sheet and its value is not expected to recover through the holding
period of the security.
Probability of default: A measure of the likelihood that a credit obligor
will enter into default status.
Qualified financial contracts: Securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements and any other contract determined by the FDIC to be a
qualified financial contract.
Risk-weighted assets: A measurement used to quantify risk inherent
in our on and off-balance sheet assets by adjusting the asset value for
risk. RWA is used in the calculation of our risk-based capital ratios.
Special mention: Loans and leases that consist of counterparties with
potential weaknesses that, if uncorrected, may result in deterioration of
repayment prospects.
Speculative: Loans and leases that consist of counterparties that face
ongoing uncertainties or exposure to business, financial, or economic
downturns. However, these counterparties may have financial
flexibility or access to financial alternatives, which allow for financial
commitments to be met.
Substandard: Loans and leases that consist of counterparties with
well-defined weakness that jeopardizes repayment with the possibility
we will sustain some loss.
Economic value of equity: A measure designed to estimate the fair
value of assets, liabilities and off-balance sheet instruments based on
a discounted cash flow model.
Supplementary leverage ratio: The ratio of our tier 1 capital to our
total leverage exposure, which measures our capital adequacy relative
to our on and off-balance sheet assets.
Exchange-Traded Fund: A type of exchange-traded investment
product that offer investors a way to pool their money in a fund that
makes investments in stocks, bonds, or other assets and, in return, to
receive an interest in that investment pool. ETF shares are traded on
a national stock exchange and at market prices that may or may not
be the same as the net asset value.
Exposure-at-default: A measure used in the calculation of regulatory
capital under Basel III final rule. It can be defined as the expected
amount of loss a bank may be exposed to upon default of an obligor.
Global systemically important bank: A financial institution whose
distress or disorderly failure, because of its size, complexity and
systemic interconnectedness, would cause significant disruption to the
wider financial system and economic activity, which will be subject to
additional capital requirements.
Held-to-maturity investment securities: We classify investments in
debt securities as held-to-maturity only if we have the positive intent
and ability to hold those securities to maturity. Investments in debt
securities classified as held-to-maturity are measured subsequently at
amortized cost in the statement of financial position.
Total loss-absorbing capacity: The sum of our tier 1 regulatory
capital plus eligible external long-term debt issued by us.
Value-at-Risk: Statistical model used to measure the potential loss in
value of a portfolio that could occur in normal markets condition, over a
defined holding period, within a certain confidence level.
Variable interest entity: An entity that: (1) lacks enough equity
investment at risk to permit the entity to finance its activities without
additional financial support from other parties; (2) has equity owners
that lack the right to make significant decisions affecting the entity’s
operations; and/or (3) has equity owners that do not have an obligation
to absorb or the right to receive the entity’s losses or return.
State Street Corporation | 189
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
State Street has established and maintains disclosure controls and procedures that are designed to ensure
that material information related to State Street and its subsidiaries on a consolidated basis required to be disclosed
in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated
and communicated to State Street's management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. For the year ended December 31, 2021,
State Street's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of State Street's disclosure controls and
procedures. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and
Chief Financial Officer concluded that State Street's disclosure controls and procedures were effective as of
December 31, 2021.
State Street has also established and maintains internal control over financial reporting as a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in conformity with U.S. GAAP. In the ordinary course of business, State
Street routinely enhances its internal controls and procedures for financial reporting by either upgrading its current
systems or implementing new systems. Changes have been made and may be made to State Street's internal
controls and procedures for financial reporting as a result of these efforts. During the quarter ended December 31,
2021, no change occurred in State Street's internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, State Street's internal control over financial reporting.
State Street Corporation | 190
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s Report on Internal Control Over Financial Reporting
The management of State Street is responsible for establishing and maintaining adequate internal control over
financial reporting.
State Street’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. State Street’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of State Street;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America, and that
receipts and expenditures of State Street are being made only in accordance with authorizations of management
and directors of State Street; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of State Street’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of State Street’s internal control over financial reporting as of
December 31, 2021 based on the framework set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control - Integrated Framework (2013).
Based on that assessment, management concluded that, as of December 31, 2021, State Street’s internal
control over financial reporting is effective.
The effectiveness of State Street’s internal control over financial reporting as of December 31, 2021 has been
audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their accompanying
report, which follows this report.
State Street Corporation | 191
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of State Street Corporation
Opinion on Internal Control over Financial Reporting
We have audited State Street Corporation’s (the “Corporation”) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In
our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the 2021 consolidated financial statements of the Corporation and our report dated February 17,
2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Corporation’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Boston, Massachusetts
February 17, 2022
/s/ Ernst & Young LLP
State Street Corporation | 192
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning our directors will appear in our Proxy Statement for the 2022 Annual Meeting of
Shareholders, to be filed pursuant to Regulation 14A on or before May 2, 2022, referred to as the 2022 Proxy
Statement, under the caption "Election of Directors." Information concerning compliance with Section 16(a) of the
Exchange Act, if required, will appear in our 2022 Proxy Statement under the caption "Delinquent Section 16(a)
Reports." Information concerning our Code of Ethics for Senior Financial Officers and our Examining and Audit
Committee will appear in our 2022 Proxy Statement under the caption "Corporate Governance at State Street."
Such information is incorporated herein by reference.
Information about our executive officers is included under Part I.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item will appear in our 2022 Proxy Statement under the captions "Executive
Compensation" and "Non-Management Director Compensation." Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information concerning security ownership of certain beneficial owners and management will appear in our
2022 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”
Such information is incorporated herein by reference.
RELATED STOCKHOLDER MATTERS
The following table presents the number of outstanding common stock awards, options, warrants and rights
granted by State Street to participants in our equity compensation plans, as well as the number of securities
available for future issuance under these plans, as of December 31, 2021. The table provides this information
separately for equity compensation plans that have and have not been approved by shareholders. Shares
thousands of shares.
following
presented
table are stated
table and
footnotes
the
the
the
in
in
in
(Shares in thousands)
Plan category:
(a)
Number of securities
to be issued
upon exercise of
outstanding
options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding
options,
warrants and rights(1)
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
8,366 (2) $
18 (3)
8,384
—
—
—
16,905
—
16,905
(1) Excludes deferred stock awards and performance awards for which there is no exercise price.
(2) Consists of 5,777 thousand shares subject to deferred stock awards, zero shares subject to stock options, zero stock appreciation rights and 2,589 thousand
shares subject to performance awards (assuming payout at 100% for all awards, including awards for which performance is uncertain).
(3) Consists of shares subject to deferred stock awards.
Individual directors who are not our employees have received stock awards and cash retainers, both of which
may be deferred. Directors may elect to receive shares of our common stock in place of cash. If payment is in the
form of common stock, the number of shares is determined by dividing the approved cash amount by the closing
price on the date of the annual shareholders' meeting or date of grant, if different. All deferred shares, whether stock
awards or common stock received in place of cash retainers, are increased to reflect dividends paid on the common
State Street Corporation | 193
stock and, for certain directors, may include share amounts in respect of an accrual under a terminated retirement
plan.
Pursuant to State Street’s Deferred Compensation Plan for Directors, non-employee directors may elect to
defer the receipt of 0% or 100% of their (1) retainers, (2) meeting fees or (3) annual equity grant award. Non-
employee directors also may elect to receive their retainers in cash or shares of common stock. Non-employee
directors who elect to defer the cash payment of their retainers or meeting fees may choose from four notional
investment fund returns for such deferred cash. Deferrals of common stock are adjusted to reflect the hypothetical
reinvestment in additional shares of common stock for any dividends or distributions on State Street common stock.
Deferred amounts will be paid (a) as elected by the non-employee director, on either the date of their termination of
service on the Board or on the earlier of such termination and a future date specified, and (b) in the form elected by
the non-employee director as either a lump sum or in installments over a two- to five-year period.
Stock awards totaling 232,391 shares of common stock were outstanding as of December 31, 2021; awards
made through June 30, 2003, totaling 18,324 shares outstanding as of December 31, 2021, have not been
approved by shareholders. There are no other equity compensation plans under which our equity securities are
authorized for issuance that have been adopted without shareholder approval. Awards of stock made or retainer
shares paid to individual directors after June 30, 2003 have been or will be made under our 1997, 2006 or 2017
Equity Incentive Plan, which were approved by shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions and director independence will appear in
our 2022 Proxy Statement under the caption “Corporate Governance at State Street.” Such information is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning principal accounting fees and services and the Examining and Audit Committee's pre-
approval policies and procedures will appear in our 2022 Proxy Statement under the caption “Examining and Audit
Committee Matters.” Such information is incorporated herein by reference.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of State Street are included in Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income - Years ended December 31, 2021, 2020 and 2019
Consolidated Statement of Comprehensive Income - Years ended December 31, 2021, 2020 and 2019
Consolidated Statement of Condition - As of December 31, 2021 and 2020
Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 2021, 2020 and
2019
Consolidated Statement of Cash Flows - Years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
Certain schedules to the consolidated financial statements have been omitted if they were not required by
Article 9 of Regulation S-X or if, under the related instructions, they were inapplicable, or the information was
contained elsewhere herein.
(A)(3) EXHIBITS
The exhibits listed in the Exhibit Index preceding the signature page in this Form 10-K are filed herewith
or are incorporated herein by reference to other SEC filings.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
State Street Corporation | 194
EXHIBIT INDEX
Restated Articles of Organization, as amended (filed as Exhibit 3.1 to State Street’s Quarterly
Report on Form 10-Q (File No. 001-07511) for the quarter ended September 30, 2018 filed with
the SEC on October 31, 2018 and incorporated herein by reference)
By-laws, as amended (filed as Exhibit 3.1 to State Street's Current Report on Form 8-K (File
No.001-07511) filed with the SEC on February 20, 2020 and incorporated herein by reference)
Description of Securities Registered under Section 12 of the Exchange Act
Deposit Agreement, dated March 4, 2014, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary), and the holders from time to time of depositary
receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511)
dated March 4, 2014 filed with the SEC on March 4, 2014 and incorporated herein by reference)
Deposit Agreement dated May 21, 2015, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary) and the holders from time to time of depositary
receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-7511)
dated May 21, 2015 filed with the SEC on May 21, 2015 and incorporated herein by reference)
Deposit Agreement dated April 11, 2016, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary) and the holders from time to time of depositary
receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-7511)
dated April 11, 2016 filed with the SEC on April 11, 2016 and incorporated herein by reference)
Deposit Agreement dated September 27, 2018, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary) and the holders from time to time of the
depositary receipts (filed as Exhibit 4.3 to State Street’s Current Report on Form 8-K (File No.
001-07511) filed with the SEC on September 27, 2018 and incorporated herein by reference)
(Note: None of the instruments defining the rights of holders of State Street’s outstanding long-
term debt are in respect of indebtedness in excess of 10% of the total assets of State Street and
its subsidiaries on a consolidated basis. State Street hereby agrees to furnish to the SEC upon
request a copy of any other instrument with respect to long-term debt of State Street and its
subsidiaries.)
State Street's Executive Supplemental Retirement Plan, as amended and restated, and First,
Second and Third Amendments thereto (filed as Exhibit 10.2 to State Street's Annual Report on
Form 10-K (File No. 001-07511) for the year ended December 31, 2020 filed with the SEC on
February 19, 2021 and incorporated herein by reference)
Supplemental Cash Incentive Plan, as amended, First and Second Amendments thereto, and
form of award agreement thereunder (filed as Exhibit 10.1 to State Street’s Quarterly Report on
Form 10-Q (File No. 001-07511) for the quarter ended March 31, 2021 filed with the SEC on April
23, 2021 and incorporated herein by reference)
State Street's 2017 Stock Incentive Plan, and forms of award agreements thereunder (filed as
Exhibit 10.2 to State Street’s Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter
ended March 31, 2021 filed with the SEC on April 23, 2021 and incorporated herein by reference)
State Street’s Management Supplemental Savings Plan, Amended and Restated, as amended
(filed as Exhibit 10.10 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the
year ended December 31, 2016 filed with the SEC on February 17, 2017 and incorporated herein
by reference)
Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2007,
as amended (filed as Exhibit 10.12 to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2011 filed with the SEC on February 27, 2012 and
incorporated herein by reference)
* 3.1
* 3.2
* 4.1
* 4.2
* 4.3
* 4.4
* 4.5
* 10.1†
* 10.2†
* 10.3†
* 10.4†
* 10.5†
State Street Corporation | 195
* 10.6†
* 10.7
* 10.8
Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2021,
as amended (filed as Exhibit 10.1 to State Street's Quarterly Report on Form 10-Q (File No.
001-07511) for the quarter ended June 30, 2020 filed with the SEC on July 27, 2020 and
incorporated herein by reference)
Deferred Prosecution Agreement dated January 17, 2017 between State Street Corporation and
the U.S. Department of Justice and United States Attorney for the District of Massachusetts (filed
as Exhibit 10.14 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year
ended December 31, 2016 filed with the SEC on February 17, 2017 and incorporated herein by
reference)
Deferred Prosecution Agreement dated May 13, 2021 between State Street Corporation and the
Office of the United States Attorney for the District of Massachusetts (filed as Exhibit 10.1 to State
Street's Current Report on Form 8-K (File No. 001-07511) filed with the SEC on May 14, 2021 and
incorporated herein by reference)
* 10.9†
Description of compensation arrangements for non-employee directors
* 10.10†
* 10.11A†
* 10.11B†
* 10.11C†
* 10.11D†
* 10.12†
*
* 10.13†
* 10.14†
State Street’s Executive Compensation Trust Agreement dated June 1, 2002 (Rabbi Trust), as
amended (filed as Exhibit 10.22 to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2017 filed with the SEC on February 26, 2018 and
incorporated herein by reference)
Form of Indemnification Agreement between State Street Corporation and each of its directors
(filed as Exhibit 10.18A to State Street's Annual Report on Form 10-K (File No. 001-07511) for the
year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein
by reference)
Form of Indemnification Agreement between State Street Corporation and each of its executive
officers (filed as Exhibit 10.18B to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and
incorporated herein by reference)
Form of Indemnification Agreement between State Street Bank and Trust Company and each of
its directors (filed as Exhibit 10.18C to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and
incorporated herein by reference)
Form of Indemnification Agreement between State Street Bank and Trust Company and each of
its executive officers (filed as Exhibit 10.18D to State Street's Annual Report on Form 10-K (File
No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014
and incorporated herein by reference)
Form of employment agreement for executive officers in the United States and Hong Kong (filed
as Exhibit 10.1 to State Street’s Quarterly Report on Form 10-Q (File No. 001-07511) for the
quarter ended March 31, 2020 filed with the SEC on April 28, 2020 and incorporated herein by
reference)
Employment Letter Agreements entered into with Andrew Erickson dated August 21, 2012,
November 19, 2012, and May 25, 2016 (filed as Exhibit 10.2 to State Street’s Quarterly Report on
Form 10-Q (File No. 001-07511) for the quarter ended March 31, 2018 filed with the SEC on May
3, 2018 and incorporated herein by reference)
Employment Letter Agreement entered into with Eric Aboaf dated September 22, 2016 (filed as
Exhibit 10.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated September
28, 2016 filed with the SEC on September 28, 2016 and incorporated herein by reference)
State Street Corporation | 196
* 10.15†
* 10.16†
* 10.17†
* 21
* 23
31.1
31.2
32
*
101.INS
* 101.SCH
* 101.CAL
* 101.DEF
* 101.LAB
* 101.PRE
* 104
Francisco Aristeguieta Employment Letter Agreement dated June 22, 2021 and Confidentiality,
Intellectual Property and Restrictive Covenant Protective Agreement dated July 15, 2019 (filed as
Exhibit 10.1 to State Street’s Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter
ended June 30, 2021 filed with the SEC on July 23, 2021 and incorporated herein by reference)
State Street Corporation Incentive Compensation Program, Effective January 1, 2019 (filed as
Exhibit 10.24 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year
ended December 31, 2018 filed with the SEC on February 21, 2019 and incorporated herein by
reference)
State Street Corporation Cash Award Plan, Effective January 1, 2019 (filed as Exhibit 10.25 to
State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31,
2018 filed with the SEC on February 21, 2019 and incorporated herein by reference)
Subsidiaries of State Street Corporation
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a)/15d-14(a) Certification of Chairman, President and Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certifications
The instance document does not appear in the interactive data file because its XBRL tags are
embedded within the inline XBRL document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Label Linkbase Document
Inline XBRL Taxonomy Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and included within the Exhibit 101
attachments)
† Denotes management contract or compensatory plan or arrangement
* Exhibit filed with the SEC, but not printed herein
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business
Reporting Language): (i) consolidated statement of income for the years ended December 31, 2021, 2020 and
2019, (ii) consolidated statement of comprehensive income for the years ended December 31, 2021, 2020 and
2019, (iii) consolidated statement of condition as of December 31, 2021 and December 31, 2020, (iv) consolidated
statement of changes in shareholders' equity for the years ended December 31, 2021, 2020 and 2019,
(v) consolidated statement of cash flows for the years ended December 31, 2021, 2020 and 2019, and (vi) notes to
consolidated financial statements.
State Street Corporation | 197
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, on February 17, 2022, hereunto duly
authorized.
SIGNATURES
STATE STREET CORPORATION
By /s/ ERIC W. ABOAF
ERIC W. ABOAF,
Executive Vice President and
Chief Financial Officer
By /s/ IAN W. APPLEYARD
IAN W. APPLEYARD,
Executive Vice President, Global Controller and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 17, 2022 by the following persons on behalf of the registrant and in the capacities indicated.
OFFICERS:
/s/ RONALD P. O'HANLEY
RONALD P. O'HANLEY,
Chairman, President and Chief Executive Officer
/s/ ERIC W. ABOAF
ERIC W. ABOAF,
Executive Vice President and
Chief Financial Officer
/s/ IAN W. APPLEYARD
IAN W. APPLEYARD,
Executive Vice President, Global Controller and
Chief Accounting Officer
DIRECTORS:
/s/ MARIE A. CHANDOHA
MARIE A. CHANDOHA
/s/ PATRICK de SAINT-AIGNAN
PATRICK de SAINT-AIGNAN
/s/ AMELIA C. FAWCETT
AMELIA C. FAWCETT
/s/ WILLIAM C. FREDA
WILLIAM C. FREDA
/s/ SARA MATHEW
SARA MATHEW
/s/ WILLIAM L. MEANEY
WILLIAM L. MEANEY
/s/ RONALD P. O'HANLEY
RONALD P. O'HANLEY
/s/ SEAN P. O'SULLIVAN
SEAN P. O'SULLIVAN
/s/ JULIO A. PORTALATIN
JULIO A. PORTALATIN
/s/ JOHN B. RHEA
JOHN B. RHEA
/s/ RICHARD P. SERGEL
RICHARD P. SERGEL
/s/ GREGORY L. SUMME
GREGORY L. SUMME
State Street Corporation | 198
EXHIBIT 31.1
I, Ronald P. O'Hanley, certify that:
1.
I have reviewed this Annual Report on Form 10-K of State Street Corporation;
RULE 13a-14(a)/15d-14(a) CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present, in all material respects, the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 17, 2022
By:
/s/ RONALD P. O'HANLEY
Ronald P. O'Hanley,
Chairman, President and Chief Executive Officer
EXHIBIT 31.2
I, Eric W. Aboaf, certify that:
1.
I have reviewed this Annual Report on Form 10-K of State Street Corporation;
RULE 13a-14(a)/15d-14(a) CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present, in all material respects, the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 17, 2022
By:
/s/ ERIC W. ABOAF
Eric W. Aboaf,
Executive Vice President and Chief Financial Officer
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A PPENDICE S
2021 ANNUAL REPORT A P P E N D I X 1
CORP OR ATE
INFORM ATION
C O R P O R A T E H E A D Q U A R T E R S
T R A N S F E R A G E N T
State Street Corporation
State Street Financial Center
One Lincoln Street
Boston, Massachusetts 02111-2900
Website: www.statestreet.com
General Inquiries: +1 617/786-3000
A N N U A L M E E T I N G
Wednesday, May 18, 2022, 9:00 a.m.
online through a live audiocast at:
www.virtualshareholdermeeting.com/STT2022
Registered shareholders wishing to change name
or address information on their shares, transfer
ownership of stock, deposit certificates, report
lost certificates, consolidate accounts, authorize
direct deposit of dividends, or receive information
on our dividend reinvestment plan should contact:
American Stock Transfer & Trust Co., LLC
c/o Operations Center
6201 15th Avenue
Brooklyn, New York 11219
Phone: +1 800/937-5449
Website: www.astfinancial.com
E-mail: help@astfinancial.com
S T O C K L I S T I N G
State Street’s common stock is listed on the New
York Stock Exchange under the ticker symbol STT.
STATE STREET CORPORATION S H A R E H O L D E R I N F O R M A T I O N
For timely information about State Street’s
consolidated financial results and other matters
of interest to shareholders, and to request
copies of our news releases and financial
reports by mail, please visit our website at:
investors.statestreet.com
For copies of our Forms 10-Q, quarterly
earnings press releases, Forms 8-K, or
additional copies of this Annual Report,
please visit our website or write to Investor
Relations at Corporate Headquarters at:
IR@statestreet.com
Copies are provided without charge.
Investors and analysts interested in additional
financial information may contact our
Investor Relations department at Corporate
Headquarters, telephone +1 617 664 3477.
2021 ANNUAL REPORT A P P E N D I X 2
BOA RD OF DIREC TORS
April 5, 2022
R O N A L D P. O ’ H A N L E Y
Chairman and Chief Executive
Officer, State Street Corporation
M A R I E A . C H A N D O H A
Retired President and Chief
Executive Officer, Charles Schwab
Investment Management, Inc.,
the investment management
subsidiary of Charles Schwab
Corporation
D O N N A L E E D E M A I O
Retired Executive Vice President
and Global Chief Operating Officer,
American International Group, Inc.
(AIG), a leading global insurance
organization
P AT R I C K D E S A I N T- A I G N A N
Retired Managing Director
and Advisory Director for
Morgan Stanley, a global financial
services firm
A M E L I A C . F A W C E T T
Lead Director, State Street
Corporation, Retired Chairman,
Kinnevik AB, a long-term-
oriented investment company
based in Sweden
W I L L I A M C . F R E D A
Retired Senior Partner and
Vice Chairman, Deloitte LLP,
a global professional services firm
S A R A M AT H E W
Retired Chairman and
Chief Executive Officer,
Dun & Bradstreet Corporation,
an international commercial
data and analytics firm
W I L L I A M L . M E A N E Y
President, Chief Executive Officer,
and Director, Iron Mountain Inc., an
information management and data
backup and recovery company
STATE STREET CORPORATION G R E G O R Y L . S U M M E
Managing Partner and Founder,
Glen Capital Partners, LLC, an
alternative asset investment fund
S E A N O ’ S U L L I V A N
Retired Group Managing Director
and Group Chief Operating Officer,
HSBC Holdings, plc., a banking and
financial services organization
J U L I O A . P O R TA L AT I N
Retired President and Chief Executive
Officer, Mercer Consulting Group,
Inc., a business of Marsh & McLennan
Companies
J O H N B . R H E A
Partner, Centerview Partners
LLC, an independent investment
banking and advisory firm
R I C H A R D P. S E R G E L
Retired President and Chief Executive
Officer, North American Electric Reliability
Corporation, a self-regulatory authority for
the bulk electricity system in North America
2021 ANNUAL REPORT A P P E N D I X 3
M A N AGEMEN T COMMIT TEE
R O N A L D P. O ’ H A N L E Y
Chairman and Chief
Executive Officer
E R I C W . A B O A F
Executive Vice President
and Chief Financial Officer
J Ö R G A M B R O S I U S
Executive Vice President
and Head of Europe,
Middle East, and Africa
A U N O Y B A N E R J E E
Executive Vice President
and Head of Corporate
Services and Investments
A N T H O N Y C . B I S E G N A
Executive Vice President
and Head of State Street
Global Markets
N A D I N E C H A K A R
Executive Vice President and
Head of State Street DigitalSM
F R A N C I S C O A R I S T E G U I E TA
Executive Vice President and
Chief Executive Officer of
State Street Institutional Services
C H R I S C O L E M A N
Executive Vice President
and Global Head of Sales
and Coverage
A full list of Executive Officers for SEC purposes is available on page 53 of our Form 10-K.
STATE STREET CORPORATION A N D R E W E R I C K S O N
Executive Vice President,
Chief Productivity Officer,
and Head of International
P A U L F L E M I N G
Executive Vice President
and Global Head of
Alternatives Segment
K A T H Y H O R G A N
Executive Vice President
and Chief Human Resources
and Citizenship Officer
W . B R A D F O R D H U
Executive Vice President
and Chief Risk Officer
A N N F O G A R T Y
Executive Vice President and
Head of Global Delivery
B R E N D A L Y O N S
Executive Vice President and
Head of Asset Servicing Product
B R I A N F R A N Z
Executive Vice President and
Global Chief Information Officer
L O U M A I U R I
Executive Vice President
and Chief Operating Officer
A full list of Executive Officers for SEC purposes is available on page 53 of our Form 10-K.
2021 ANNUAL REPORT A P P E N D I X 3
M A N AGEMEN T COMMIT TEE
(Continued)
J U L I A M C C A R T H Y
Executive Vice President and
Head of Client Experience
M I C H A E L R I C H A R D S
Executive Vice President and
Chief Administrative Officer
D O N N A M I L R O D
Executive Vice President and
Lead Integration Executive for the
BBH Investor Services Business
M A R C Í A R O T H S C H I L D
Managing Director,
Head of Latin America
D A V I D C . P H E L A N
Executive Vice President
and General Counsel
M O S T A P H A T A H I R I
Executive Vice President,
Head of Asia Pacific
J O H N P L A N S K Y
Executive Vice President and
Head of State Street AlphaSM
C Y R U S T A R A P O R E V A L A
President and Chief Executive Officer,
State Street Global Advisors
A full list of Executive Officers for SEC purposes is available on page 53 of our Form 10-K.
STATE STREET CORPORATION A P P E N D I X 4
S TATE S TREE T WORLDW IDE
A U S T R A L I A
Melbourne
Sydney
A U S T R I A
Vienna
B E L G I U M
Brussels
B R A Z I L
Sao Paulo
B R U N E I
D A R U S S A L A M
Bandar Seri
Begawan
C A N A D A
Montreal
Toronto
Vancouver
C A Y M A N
I S L A N D S
Grand Cayman
C H A N N E L
I S L A N D S
Jersey
Saint Helier
F R A N C E
Paris
G E R M A N Y
Frankfurt
Leipzig
Munich
I N D I A
Bangalore
Chennai
Coimbatore
Hyderabad
Mumbai
Pune
Vijayawada
I R E L A N D
Dublin
Kilkenny
Naas
I T A L Y
Milan
Turin
J A P A N
Fukuoka
Tokyo
Georgia
Atlanta
Illinois
Chicago
Massachusetts
Boston
Burlington
Cambridge
Quincy
Missouri
Kansas City
New Jersey
Clifton
Jersey City
Princeton
North Carolina
Charlotte
Pennsylvania
Berwyn
Texas
Austin
L U X E M B O U R G
Luxembourg
S W I T Z E R L A N D
Zurich
M A L A Y S I A
Kuala Lumpur
T A I W A N
Taipei City
N E T H E R L A N D S
Amsterdam
T H A I L A N D
Bangkok
P E O P L E ’ S
R E P U B L I C
O F C H I N A
Beijing
Hangzhou
Hong Kong
Shanghai
P O L A N D
Gdansk
Krakow
U N I T E D A R A B
E M I R A T E S
Abu Dhabi
U N I T E D K I N G D O M
England
London
Scotland
Edinburgh
U N I T E D S T A T E S
S A U D I A R A B I A
Riyadh
Arizona
Scottsdale
S I N G A P O R E
Singapore
S O U T H K O R E A
Seoul
California
Irvine
Redwood City
Sacramento
Connecticut
Stamford
2021 ANNUAL REPORT We at State Street do not take our relationship with the Earth for granted.
Sustainability and environmental stewardship are two tenets embedded in all
facets of our business — from our strategy to our offerings and how we work.
Parts of this report are printed on Rolland Enviro,® a 100% post-consumer
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State Street Corporation
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statestreet.com
Important Information
©2022 State Street Corporation
All rights reserved.
4571105.1.1.GBL.RTL.
Expiration date: 3/31/2023
This document is for general, marketing, and/or informational purposes only. It is not intended to provide legal, tax, accounting, or investment advice, and it is not an offer or
solicitation to buy or sell any registered product, service, or securities or any financial interest, nor does it constitute any binding contractual arrangement or commitment at any
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This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance
and actual results or developments may differ materially from those projected. The information provided does not constitute investment advice and it should not be relied on as
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This information is provided “as is” and State Street Corporation and its subsidiaries and affiliates (“State Street”) disclaims any and all liability and makes no guarantee, repre-
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