State Street Corp (NYSE:STT) Q4 2019 Earnings Conference Call - Final Transcript
Jan 17, 2020 • 10:00 am ET
Ronald P. O'Hanley
Operator, can we open the line to questions?
[Operator Instructions] Our first question comes from Brennan Hawken with UBS. Your line is now open.
Good morning. Thanks for taking the question. Eric, you just ran through a bunch of color on expectations for the year and 1Q. One that I was hoping to dig a little in on is the fee revenue side. I think you said that the 1Q fee revenue growth down 2% to 3% sequentially and you gave a couple of factors. Does that guidance include what we've seen so far year-to-date in the equity markets, which has been pretty robust or is that a potential offset if it proves to be durable through the quarter? Thanks.
Brennan, it's Eric. The guidance is effectively as of a combination of the end of the year, and obviously, if there is large dislocation between then and now we factor it in. I think you'd say equity markets are up, volatility is still low on -- in trading, it's still pretty light. We've not seen that big January uptick that I think we used four, five years ago. Interest rates have been, call it, pottering around. So I don't think there is a lot that's really changed. And this is an outlook effectively based on what we see now. I think, I described there is some of this is just the usual seasonality, like in Charles River, which peaks in fourth quarter just because of the cycle, sales that's come through and then dip in first quarter. We have some visibility into servicing fees, asset management fees. I noted, it will take a bit of a step down trading we'll see. So it's kind of a combination that we're looking at.
That's all really fair. Thanks for that color. And then, when we think about some of these robust equity markets that we've seen, and you guys have clearly done a really good job of trying to get your hands around the elevated fee pressure that you were seeing over early 2019 and leading into that. In the past, we've seen some breakage in fee rate when equity market's rally really hard, really fast, because your servicing fees are not all just purely, contractually, percentage of AUC, basis points on assets under custody. Some of them are inflation. Some of them are pegged activity levels in the like. So can you help us think about, should we be prepared for optically the way we model State Street, some fee rate pressure here in the near-term? Just because of those mechanical factors rather than thinking -- I just -- I know some people think that when equity markets go up, okay, then the servicing fee is going to go up with the fee rate being flat. In the past, it hasn't worked out that way. So just trying to think about how to calibrate for that. Thanks.
Ronald P. O'Hanley
Hi, Brennan, it's Ron. Let me begin on that. I mean, in the past, you're