State Street Q4 Earnings Call Highlights
State Street NYSE: STT executives highlighted what they described as a strong finish to 2025 and outlined expectations for continued operating leverage in 2026, supported by ongoing investment in technology transformation, including expanded use of AI-enabled capabilities.
Fourth quarter and full-year performance
Chief Executive Officer Ronald O’Hanley said the company’s fourth quarter results capped “another successful year,” pointing to the firm’s second consecutive year of positive operating leverage and pre-tax margin expansion, and the eighth straight quarter of positive operating leverage (excluding notable items).
On an ex-notable basis, O’Hanley said fourth quarter EPS grew 14% year over year, supported by “record quarterly fee and total revenue.” He added that pre-tax margin in the quarter was 31% excluding notable items. For the full year, he said EPS was $10.30, up 19% year over year (excluding notable items), and return on tangible common equity (ROTCE) was 20%.
CFO John Woods said State Street delivered record total revenue of about $14 billion for 2025, up more than 7% from the prior year, and record fee revenue of $11 billion, up 9%. Expenses were $9.8 billion, up 5%, which Woods attributed primarily to increased strategic investments and technology platform transformation, “net of productivity savings.” Woods said full-year operating leverage was nearly 220 basis points, with a pre-tax margin of about 29% versus 28% in 2024.
Woods also disclosed notable items totaling $206 million pre-tax in the fourth quarter, or $0.55 per share after tax, “primarily reflecting repositioning charges associated with our ongoing productivity efforts, as well as an FDIC special assessment released included in other notable items.”
Business trends: servicing, investment management, markets, and software
In investment services, Woods said fourth quarter servicing fees increased 8% year over year, driven by higher average market levels, net new business, and currency translation. He reported record assets under custody and/or administration (AUCA) of $53.8 trillion, up 16% year over year. For 2025, Woods said the firm generated servicing fee revenue wins of about $330 million, surpassing $300 million for the third consecutive year.
Both O’Hanley and Woods emphasized private markets as a growth area. O’Hanley said private market servicing fees grew at a double-digit pace in 2025, while Woods specified 12% growth for the year and said private markets now represent about 10% of servicing fees, up from 9% in 2024.
In investment management, Woods said the firm posted a “record year” for investment management revenue. Management fees increased 15% year over year in the fourth quarter to a quarterly record of $662 million, which he attributed to higher average market levels and quarterly net inflows of $85 billion. He said assets under management rose 20% year over year to an all-time high of $5.7 trillion. O’Hanley said 2025 marked the third consecutive year of net new asset growth above 3% and noted a record 134 new products launched during the year, including partnerships tied to alternative strategies and new ETF offerings.
State Street Markets also delivered growth in the quarter. Woods said FX trading revenue rose 13% year over year and securities finance revenue increased 8%, driven primarily by higher client lending balances. O’Hanley noted double-digit full-year fee revenue growth across both FX trading services and securities finance, adding that the firm received eight category wins in Euromoney’s FX awards in 2025.
Software and processing fees were a weaker spot in the quarter. Woods said the line declined 15% year over year, primarily due to lower on-premises renewals. He said this was partially offset by a 7% increase in software-enabled revenues as clients continued to transition to the company’s cloud-based SaaS platform. Woods cited annual recurring revenue of about $420 million in the fourth quarter, up about 11% year over year, and a front office revenue backlog up about 16%.
Net interest income, expenses, and productivity savings
Woods said fourth quarter net interest income (NII) was $802 million, up 7% year over year, with net interest margin (NIM) expanding three basis points to 1.10%. He attributed the year-over-year NIM improvement to better interest-earning asset and funding mix, partially offset by lower market rates, and highlighted portfolio repricing and “runoff from terminated hedges on loan yields.”
During Q&A, Woods cautioned against simply annualizing the fourth quarter NII performance, citing seasonal deposit mix benefits—particularly higher non-interest-bearing deposits—that he said may moderate in 2026. He also said terminated hedges contributed about two basis points in the fourth quarter and should remain a tailwind, though with quarter-to-quarter “lumpiness.”
On expenses, Woods said fourth quarter expenses rose about 6% year over year excluding notable items, driven by strategic initiatives, technology investments, and higher operational costs, partially offset by productivity savings. O’Hanley said State Street achieved its full-year productivity savings target of $500 million in 2025, and Woods said the company is targeting comparable savings in 2026.
Capital return and balance sheet positioning
Woods said the company returned $635 million of capital to common shareholders in the fourth quarter, including $400 million in share repurchases and $235 million in declared dividends, resulting in a payout ratio of over 90% for the quarter. For the full year, he said State Street returned more than $2.1 billion, with a total payout ratio of roughly 80%.
At quarter-end, Woods said the standardized CET1 ratio was 11.7%, up about 40 basis points from the prior quarter, primarily due to lower risk-weighted assets driven by market dynamics in the FX trading and agency lending businesses.
2026 outlook: fee growth, operating leverage, and transformation investments
For 2026, Woods provided guidance on a “next notable” basis and said the company’s outlook assumes global equity markets are flat point-to-point in 2026, with the daily average up roughly 11% year over year. He said the rate outlook assumes two Fed cuts, one cut by the Bank of England, and no cuts by the ECB.
- Fee revenue: expected to rise 4% to 6%, driven by momentum in servicing and management fees and supported by client engagement in markets.
- NII: expected to be up low single digits for the full year, with an improvement in NIM relative to 2025.
- Expenses: expected to increase about 3% to 4%, as productivity savings are expected to largely offset growth in recurring operating costs.
- Operating leverage: expected to be positive and in excess of 100 basis points, implying pre-tax margin of roughly 30% in 2026.
- Tax rate: expected to be approximately 22%.
- Payout ratio: expected to be roughly 80%, subject to board approval and other factors.
Executives emphasized that the operating leverage outlook reflects deliberate reinvestment. Woods said the firm is “baking in significant productivity savings” that help offset “run-the-bank” costs, while incremental expense growth reflects “multi-year investments” across private markets, wealth, digital initiatives, and technology-led transformation. O’Hanley said AI is already contributing and that savings related to AI should occur “at an accelerating rate” in the second half of 2026 and into 2027.
On digital assets, O’Hanley told analysts the work is “relatively little” about cryptocurrencies and more focused on digitizing transactions, such as tokenizing cash and money market funds and enabling connections between traditional finance and emerging digital “rails.” He said tokenized money market funds could function as collateral, among other benefits like faster settlement. Both O’Hanley and Woods said the financial impact is difficult to predict and is more of a medium-term opportunity, with Woods stating it is “not really going to be visible in 2026.”
In response to investor questions about larger strategic moves, O’Hanley said the company considers M&A as part of capital deployment and referenced the firm’s prior attempt to pursue BBH as a scale-driven transaction, while emphasizing confidence in organic execution. Woods said the company believes upside from its current strategy should “accrue to the benefit of the existing shareholder base.”
About State Street NYSE: STT
State Street Corporation is a global financial services company that provides a range of investment servicing, investment management and investment research and trading services to institutional investors. Its principal activities include custody and fund administration, securities lending, performance and risk analytics, trading and execution services, and foreign exchange. The company also offers investment management through State Street Global Advisors, a major provider of exchange-traded funds and institutional investment strategies.
State Street serves a broad client base of asset managers, insurance companies, pension funds, endowments, and other institutions across North America, Europe, Asia and other global markets.
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