STT

Running Head: State Street Corporation

Financial Performance of State Street Corporation

Research Paper

Tahamidur Rahman

Instructor: Roberto Marchesini, Ph.D

University of Houston- Clear Lake

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TABLE OF CONTENTS

Business Brief:..........................................................................................3

Industry Insights......................................................................................3

Business Strategies..................................................................................5

Quality of Earnings...................................................................................8

Performance Assessment......................................................................10

Conclusion.............................................................................................15

Appendices............................................................................................16

Bibliography...........................................................................................26

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Business Brief:

The report has been drafted to measure the performance efficiency of State Street Corporation; a

financial holding company traded at NYSE under the Financial Services Industry’s sector of

Asset Management. It is registered with Federal Reserves and is regulated by the Bank Holding

Company Act. It’s primarily involved in business through its banking subsidiary, State Street

Bank- A custodian bank with global footprints that usually serves institutional investors. It

operates in two lines of businesses listed as: Investment Servicing through State Street Bank and

Investment Management through State Street Global Advisors (SSGA) (Deloitte 2015)

Industry Insights

The definition of Financial Services Industry has evolved from a group of traditional money

handlers to a diverse sector with constituents that principally operated on “Old industrial model”

of lending mainly for exports and on short-term while financing limited to the state-owned

corporations and multinationals. Today, the efforts are concentrated in investing to devise a new

business model focused on innovation and domestic consumption that provides value to lenders,

borrowers, investors& creditors (individuals or otherwise) and the economy at large (Wyman

2014). This industry plays a backbone for any economy in meeting its capital requirements,

managing liquidity and mitigating risks by offering a wide range of financial products for the

mutual benefits of all the parties involved.

The industry has emerged victorious from multiple recessions, devastating crises and horrific

transitions throughout its long history. It stands with even-solid footings than it has ever stood,

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compared to the financial position before the Global Financial Crisis 2008 (Deloitte

2015).Investors’ confidence globally is a bit shattered as they seek to take possible preventive

measures to avoid any such mishaps that had struck them in the recent past.

State Street’s investment management services fall into Asset Management Industry, a division

of Financial Services Industry. For this industry in particular, continued efforts of recovery from

the crisis yielded results when it registered its first post-crisis growth in 2012, four years past the

crisis. Since then, the indicators have bolstered and performance has elevated. However, this

return of economic optimism was noted particularly in developed markets with emerging

markets still trying to make a shift.

The industry noted growth in Assets Under Management (AUM), primarily driven by rising

equity prices and modestly contributed from net flows. Then flows have been pumped in to the

economy by “non-traditional” asset managers and innovative solution providers. Hence, the

situation appears complex for traditional practitioners, and the industry at large, as the space for

them shrinks after a new wave of evolution and regulatory frame work to enhance transparency.

The global asset management industry manages assets worth $68.7 trillion in 2013after a rise of

11% from previous year reading. However, it used to manage around $54.7 trillion in AUM a

year before the crisis struck. Despite only a moderate contribution in AUM-increase recorded

from new asset flows, the contribution looks a little applauding if seen in context with the

previous year level; that is, 0.4% increased contribution in AUM.

On the other hand, the industry is turning again into one of the most profitable industries. It

operated with 39% operating margin in 2013, after a rise of 2% from the previous year. Such

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high levels have been obtained as a result of cost efficiencies that are helping approach the pre-

crisis period’s peak margin of 41% in 2007.

Precisely, the stats show that the Financial Industry, in general, is well positioned to invest in

compliance and respond accordingly to the changes made in regulatory framework, has made

substantial investment in technology, is way deeper in the use of analytics to grab their share and

is more focused on growing revenues and enhancing cost efficiencies to drive financial

performance (Deloitte 2015).This further advocates prospects for the industry in years to follow.

Since State Street’s operations are concentrated in North America as per the divisional share in

Assets under Custody and Administration (AUA) and Assets under Management (AUM), its

largest competitors include certain businesses traded at NYSE in the same sector, examples of

which include The Bank of New York Mellon Corporation, JPMorgan Chase & Co., Northern

Trust Corporation and many more (Yahoo Finance 2105).

Business Strategies

The compliance with newly enacted regulations by the authorities and the growing demand for

non-traditional investing tools, combined with continued thrive for technology-driven measures

to enhance operational efficiently has made business survival a difficult drive. Increasing

downward pressure on prices due to intense competition has made State Street management

consider several restructuring options to smoothly pave its way into the future. Certain strategic

measures; aligned with Business Strategy; that complemented operations include.

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Business Operations and Information Technology Transformation Program

This program (2010-14) was launched to improve cost efficiencies by generating marginal

savings to offset expenses associated with business operations; Information Technology

infrastructure and usage; and measures to cut cost on certain targeted initiatives including

occupancy cost and undesirable employee compensation. However, the management considers

employees its partners in success and couldn’t consider unjustified cost-cutting at the expense of

compromising on its strategic assets. The implementation involved $440million worth of pre-tax

expenses to generate pre-tax savings worth $625million over the entire course of four years.

Advantages derived include

Employee Compensation and Benefits

In 2014, the employee compensation and benefits expenses rose by 7% only. Had there been

no implementation of this program, the incremental cost could have been much higher. The

cost was partially offset by the saving generated from the program. This increase in cost

primarily corresponds, not restricted, to staffing expenses and increased remuneration as a

result of promotion.

Information System improvements

For the initiatives in Information Technology, the company has invested substantially. The

implementation of this program allowed the offset of increased expenses in Information

systems and communication.

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Business Operations

For the purpose of reducing complexity, many core business processes have been standardized.

These processes were then readily automated, and the reliance on specialist third-party services

providers for IT infrastructure and support services has been increased.

Acquisition Strategy

The management of State Street Corporation has a well-devised business strategy to grow and

sustain its market share by building upon any opportunity to acquire a complementary business

or technology. Its progress throughout is marked with several events of acquisitions, few of

which involve acquisition of Complementa Investment-Controlling AG, Intesa Securities and

Bank of Ireland Asset Management by its Investment management business; SSGA.

Liquidity Management Strategy

State Street runs complementary sets of businesses. The deposits available with world-wide

branches of its custodian banks are used for settlement of transactions associated with client’s

investment portfolio. Thus, the business generates most of its liquidity from clientele deposits

and doesn’t have to rely entirely on wholesale funding. Hence, the global presence of

complementary businesses helps save margins for State Street in terms of savings in funding cost

and transaction cost (State Street 2014).

Customer-Oriented Strategies

Management at State Street is fully aware of the benefits associated with having its customers

satisfied in order to enhance the business sustainability in the long-run. In order to keep the

clients contented and allow them purchases of services from different business unit, the company

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offers an integrated model of sales. It translates into providing customer the leisure to choose

different products, all from different business units, and couple them into becoming a single

integrated product. This integrated product is priced individually based on the customer’s

relationship with the business and is called Relationship pricing for clients.

Quality of Earnings

The predictability of income over a period of time is referred to as the quality of earnings. The

more predictable the earnings are, the more qualitative they are deemed to be. Predictability of

earnings is greatly depended on a company employing the same accounting standards over the

years, having no prominent swings in its recurring operational income and not having sizable

extraordinary items reported.

For predictability of State Street earnings, its Consolidated Statement of Income has been

thoroughly and critically analyzed with particular attention paid to in-depth assessment of

accompanying notes. The conclusion derived is stated in the lines to follow.

Revenue Sources:

The two major chunks that contribute largely to the fee revenue include servicing fees and

management fees. They comprised of some 78-79% of the total fee revenue. Along with FEE

REVENUE which makes up around 76-78% of the total revenue in the past 2 years, NET

GAINS/(LOSSES) related to investment securities and NET INTEREST REVENUE are

summed up to measure TOTAL REVENUE. Servicing fees are driven by Asset under

Custody and Administration (AUA) while the Assets under Management (AUM) primarily

drive investment fee revenue. However, the fee revenue doesn’t entirely depend on these two

factors, and relationship pricing along with other factors can make an influence.

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All the revenue streams appear relatively consistent and uniform. The stats suggest only 2%

change in total revenue in case of 10% change in the global equity valuations worldwide and

only a percent change in total revenue if the values for global fixed income securities

fluctuate by 10%. This highlights high quality revenue streams

Contra-Revenue Accounts

The business is a participant in the lending program to non-investment-grade borrowers for

which, the management records provisions for loan losses. The recent year readings show an

increase of 66% resulted from growth in the lending portfolio. However, the amount is not

substantial enough to render any serious deterioration in company’s revenue, there-by,

making the predictability of income more certain.

Expense Account

The incurred expenses over the past two years indicate steady rise when seen in context with

the increased number of employees. The expenses rose by approximately 8.8% in 2014

compared to 4.4% in 2013 as the number of employees increased by 540 in the year 2014.

Upon examining the expense account closely, it is concluded that over half the expenses

incurred in 2014 and 2013 correspond to Compensation and Employee Benefits (CEB). Even

the major chunk of expenses from Business Operations and Information Technology

Transformation Program (2010-14) relate to CEB, making it the prime factor to drive overall

Expenses.

The observations suggest that CEB expenses increased by 7% in 2014 as a result of many

factor, momentous of which include Severance cost, which increased by 7.6X.The

Regulatory Compliance cost increased substantially in terms of liquidity and capital

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management and the Management anticipates such hikes to continue in the near future,

making the expenses account vulnerable to changes.

In light of the above presented arguments coupled with facts and figures, it appears with

reasonable assurance that the financial statements provided no evidence of discounted

operations, change in accounting policies and reporting of any frequent extraordinary items

that have significantly affected the earnings stream of the business, rendering them

unpredictable. Therefore, the company can be assumed to have a sound outlook in terms of

quality of the earnings; however, the management considers exposure to operational and

reputational risk.

Performance Assessment

This section evaluates the performance of State Street Corporation by employing a series of

analytical tools such as Ratio Analysis performed on the Statement of Income and Statement of

Financial Position and cash flow analysis performed on Statement of Cash flows. The aim is to

predict the company’s prospects in the future based on historical performance and identify the

lapse that poses risks. The business has been evaluated on certain matrices such as Profitability,

Liquidity, Asset management efficiency, Gearing and Leveraging and Cash Flow management.

Profitability

The company’s profitability has been evaluated for efficiency in deployment of assets and

capital in a manner that generates higher returns for the business and increase sits cost

efficiencies to earn greater margins. The ratios employed are Net Profit margin, Return on

Asset and the Return on Capital Employed.

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The company’s net margins are observed to have a slightly diminishing trend in the last year.

This decrease was notably contributed from the 7% increased expenses in Compensation and

Employee Benefits, which form the greatest portion of the total expenses every year.

However, the company still earns competitive net margins of 19.79% compared to one of its

largest competitors- JPMorgan Chase & Co. - that earns 21.33% Net margins.

When observed on the efficiency of Assets utilization to earn profits, a similar trend is

observed with efficiency decreasing slightly each year probably due to the relatively greater

attainment of assets in 2014 (12.67%) compared to 2013(9.34%). This in turn pushed the

efficiency down a little; recorded using ROA; to 0.74% in 2014 from 0.88% and 0.93% in

2013 and 2012 respectively. Despite this decrease, the efficiency is not substantially subpar

compared to the competitor’s efficiency of 0.81% in 2014. However, the industry as a whole

must be operating at significantly lower margins and efficiency.

The last ratio used to gauge efficiency of capital employment to generate returns is Return on

Capital Employed. The capital considered for calculation is the owner’s equity coupled with

only the long-term borrowing of the business. The short-term borrowings are identified from

the Note 8 of the annual accounts (Annual Report and Accounts 2014) and outcast in an

attempt to evaluate performance in a long run. Since short term borrowings are not accounted

for in calculation of this ratio, the net of tax interest expense is also deducted from the

Income before tax. The reading comes out to 1.07% in 2014 following an elevated

performance in 2013 (1.30%) and 2012 (1.49%).

The decrease in all three ratios are probably indicating a maturity point of State Street along

with many other factors for this decrease such as increased growth in assets in 2014 and

decreased margins due to higher regulatory compliance expenses.

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Liquidity

The liquidity is measured in perspective of having the ability to meet all its short term

obligations. The ratios used include Current Ratio and Interest Coverage Ratio also known as

Times Interest Earned. The Current ratio for State Street is on a continuous rise for the last

three years with readings measured at 8.87X, 7.60X and 5.63X in 2014, 2013 and 2012

respectively. The times interest earned; however, show somehow consistent performance

over the period with no substantial increase or decrease. The slight change has been the result

of exponentially increased interest bearing liabilities, the effects of which have been largely

offset by the increased income for the year in 2014. The ratios stand at 7.27X, 7.54X and

6.81Xin 2014, 2013 and 2012 respectively. This highlights an even better performance than

its competitor: JPMorgan Chase & Co. which has a coverage ratio of 3.76X in the trailing

twelve months period (WikiInvest 2015).

On this matrix, the company has been outperforming its competitors and has a sound outlook

of the ability to payout its near maturity debts.

Leverage

Generally, the constituents of the financial services industry, particularly the Custodian

Banks, have a higher multiple of Debt relative to their equities. These debts are owed to the

bank in the form of deposit and other liabilities. For State Street, the gearing has been

measured using Debt to Equity ratio and the Degree of Financial leverage (DFL) that gauges

the change in EPS with a subsequent percentage change in EBIT.

The Debt/ Equity ratio for State Street represents the customers’ astounding belief in the

management of their deposits which are on a continuous exponential hike since 2012. The

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ratio reads at 11.15X in 2014 compared to its competitor’s measure of 10.44X (WikiInvest

2015). The year 2014 represents a rise of 7.5% from 10.36X in 2013 and 9.05X in 2012.

On the other hand, the DFL specifies the impact of interest expense on the post-interest

income of the business. State Street has managed to remain considerably consistent on this

matrix with year 2014 measuring a DFL of 1.16, a rise of 0.5% from the past year’s

performance of 1.15 in 2013. This ratio represents relative stability when compared to the

competitor’s measure of 1.45 in the last fiscal year 2014 (MorningStar 2014).

Asset Management Efficiency

The asset management efficiency relates to activity ratios that measure the use of tangible

and intangible assets and equity to generate revenue for the company. The ratios estimated

are Total Asset Turnover, Equity Turnover and Intangible Asset Turnover.

Asset turnover implies to the amount of sales generated per dollar of assets. As State Street

and other custodian banks have to have a large amount of assets invested in to securities or

kept with the regulatory authority in compliance with the set standards, the turnover is

usually lesser than 1. For the period under consideration for analysis, State Street has

managed to consistently meet the industry and competitors’ set benchmark of 0.4 in 2014

(Wall Street Journal 2015). The bank impressively generated ratio equaling 0.4 in all the

three periods (2102-14) of analysis.

The Intangible Asset turnover brings into attention the utilization of goodwill and brand

name to help generate revenues for the business. It is important ratio at times when the

industry becomes saturated and efficiency is measured on the use of brand name to attract

customers. The business has been observing quite consistent growth in registering revenues

derived from enormous goodwill and brand equity. It has been earning $1.31, $1.18, and

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$1.13 per dollar of sales in the year 2014, 2013 and 2012 respectively. These measures

signify consistent rise in the use of goodwill to attract business.

The last ratio in this matrix, the Equity Turnover Ratio, depicts uniformity, which can now be

considered a representation symbol of State Street Corporation. Its performance pertaining to

this ratio is determined at $0.48 of revenue per dollar of equity in 2014. Similar

measurements have been observed from the past performance in 2013 and 2012 where the

posted equity turnover is appraised at 0.49 and 0.46.

Cash Flow Analysis

There are several methods to analyze the sustainability of the cash flows a business

generates, one of which is the cash flow ratios analysis which is pre-dominantly focused on

Operating Cash Flows. Nevertheless, as opposed to the case with other businesses where

only the operating cash flow are considered as one from the core activities, the banks don’t

count Investing and Financing activities as peripherals, rather core.

There have been three ratios used to scrutinize the efficacy of State Street cash flows.

However, the comparison among banks is meaningless to a large extent as different banks

account for investments differently and estimate non-cash transfer of their loans uniquely. Of

the three ratios, the first is Operating Cash Flow to Net Sales ratio which measures the ability

of a company to turn sales into cash. State Street has substantially large amount of non-cash

assets such as collateral deposit and unrealized gains from Foreign Exchange which keep

increasing each year by significantly large amounts. This may be an achievement for the

company, but in terms of Cash flows, they are to be deducted from Net Sales and results into

decreased operating cash flow, sometimes reaching down into negative. State Street has the

same issues with the cash flow management and doesn’t perform impressively in generating

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operating cash flows. This in turn results into negative OCF/Net Sales ratio during the past 2

years. However, the performance this year was relatively better, yet not satisfactory. The

ratios are measured at -5%, -20% and 20% in the years 2014, 2013 and 2012 respectively.

For estimation of the free cash flows, the depreciation expense is gathered from note 20 in

annual accounts and deducted from the operating cash flows along with change in CAPEX.

This further amplified the negative OCF to come up with certainly disappointing free cash

flows. The same has been the result with short term debt coverage ratio with OCF. In a

nutshell, the company experiences downgrading performance with management of the cash

flows.

Conclusion

The financial performance of the top notch financial services provider - State Street Corporation

- having global footprints has been quite impressive in all the performance matrices except one.

The company has to invest in making its cash flows getting streamlined with the industry trends.

The consistency in performance is observed by carrying out the analysis on common size

statements, which suggest no considerable proportionate change in different accounts of the

income statement. However, substantial change in the proportion of interest bearing deposits in

assets depicts increased and heavy reliance. This in turn exposes the business to interest rate risk.

The other observation made from the common size Balance sheet is the increasing proportion of

Retained Earnings each year’s followed by the increased payments of dividends to equity

holders. This shows investors’ confidence in the management of State Street in carrying out the

business effectively. This confidence is reflected in the surplus account of the Equity portion in

B/S which makes up nearly half the total equity of shareholders.

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The Capital Structure and the huge amounts owed to borrowers in the form of deposits put the

company into intensified Financial Risk, the implications of which will be even amplified if an

upward shift is noted in the offering rate. However, economic conditions remain truthful to the

nature of this business and prospects are evident for the stakeholders if the business continues to

prosper and grow with the same consistency and deal with certain factors where it lags.

Appendices

STATE STREET CORPORATIONCONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DEC 31,

(Dollars in Millions)

2,014

2,013

2,012

Fee Revenue:

Servicing fees 5,129

4,819 4,414

Management fees 1,207

1,106

993

Trading services 1,084

1,094 1,036

Securities finance 437

359

405

Processing fees and other 174

212 240

Total fee revenue 8,031

7,590

7,088

Net interest revenue:

Interest revenue 2,652

2,714

3,014

Interest expense 392

411 476

Net interest revenue 2,260

2,303

2,538

Gains (losses) related to investment securities, net:

Net gains (losses) from sales of available-for-sale securities 15

14

55

Losses from other-than-temporary impairment (1)

(21) (53)

Losses reclassified (from) to other comprehensive income (10)

(2)

21

Gains (losses) related to investment securities, net 4

(9)

23

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Total revenue 10,295

9,884

9,649

Provision for loan losses 10

6

(3)

Expenses:

Compensation and employee benefits 4,060

3,800 3,837

Information systems and communications 976

935

844

Transaction processing services 784

733 702

Occupancy 461

467

470

Claims resolution -

-

(362)

Acquisition and restructuring costs 133

104

225

Professional services 440

392 381

Amortization of other intangible assets 222

214

198

Other 751

547 591

Total expenses 7,827

7,192

6,886

Income before income tax expense 2,458 2,686

2,766

Income tax expense 421

550

705

Net income 2,037

2,136 2,061

Net income available to common shareholders 1,973 2,102

2,019

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STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT DEC 31,


2,014

2,013

2,012

Assets:

Cash and due from banks 1,855

3,220

2,590

Interest-bearing deposits with banks 93,523

64,257

50,763

Securities purchased under resale agreements 2,390

6,230

5,016

Trading account assets 924

843

637

Investment securities available for sale 94,913

99,174

109,682

Investment securities held to maturity (fair value of $17,842,$17,560 and $11661) 17,723

17,740

11,379

Loans and leases (less allowance for losses of $38, $28 and $22) 18,161

13,458

12,285

Premises and equipment (net of accumulated depreciation of $4,599, $4,417 and $4037) 1,937

1,860

1,728

Accrued interest and fees receivable 2,242

2,123

1,970

Goodwill 5,826

6,036

5,977

Other intangible assets 2,025

2,360

2,539

Other assets 32,600

25,990

18,016

Total assets 274,119

243,291

222,582

Liabilities:

Deposits:

Noninterest-bearing 70,490

65,614

44,445

Interest-bearing—U.S. 33,012

13,392

19,201

Interest-bearing—non-U.S. 105,538

103,262

100,535

Total deposits 209,040

182,268

164,181

Securities sold under repurchase agreements 8,925

7,953

8,006

Federal funds purchased 21

19

399

Other short-term borrowings 4,381

3,780

4,502

Accrued expenses and other liabilities 20,237

19,194

17,196

Long-term debt 10,042

9,699

7,429

Total liabilities 252,646

222,913

201,713

Commitments, guarantees and contingencies (notes 10 and 11)

Shareholders’ equity:

Preferred stock, no par, 3,500,000 shares authorized:

Series C, 5,000 shares issued and outstanding 491

491

489

Series D, 7,500 shares issued and outstanding 742

-

Series E, 7,500 shares issued and outstanding 728

-

Common stock, $1 par, 750,000,000 shares authorized:



CONSOLIDATED STATEMENT OF CASH FLOW

YEAR ENDED DEC 31,


2,014

2,013

2,012

Operating Activities:

Net income 2,037

2,136

2,061

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Deferred income tax expense 79

62

231

Amortization of other intangible assets 222

214

198

Other non-cash adjustments for depreciation, amortization and accretion, net 477

461

291

(Gains) losses related to investment securities, net (4)

9

(23)

Change in trading account assets, net (81)

(206)

70

Change in accrued interest and fees receivable, net (119)

(153)

(148)

Change in collateral deposits, net (4,362)

(4,046)

(1,443)

Change in unrealized (gains) losses on foreign exchange derivatives, net (2,042)

(128)

982

Change in other assets, net 3,612

(819)

(360)

Change in accrued expenses and other liabilities, net (669)

113

(250)

Other, net 289

333

324

Net cash (used in) provided by operating activities (561)

(2,024)

1,933

Investing Activities:

Net (increase) decrease in interest-bearing deposits with banks (29,266)

(13,494)

8,123

Net decrease (increase) in securities purchased under resale agreements 3,840

(1,214)

2,029

Proceeds from sales of available-for-sale securities 9,766

10,261

5,399

Proceeds from maturities of available-for-sale securities 36,120

37,529

44,375

Purchases of available-for-sale securities (43,146)

(39,097)

(60,812)

Proceeds from maturities of held-to-maturity securities 3,217

2,080

3,176

Purchases of held-to-maturity securities (3,778)

(8,415)

(3,577)

Net increase in loans (4,785)

(1,214)

(2,303)

Business acquisitions, net of cash acquired -

-

(511)

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Purchases of equity investments and other long-term assets (182) (272) (251)

Purchases of premises and equipment (427)

(388)

(355)

Other, net 149

139

116

Net cash used in investing activities (28,492)

(14,085)

(4,591)

Financing Activities:

Net increase (decrease) in time deposits 54,404

(14,507)

7,627

Net (decrease) increase in all other deposits (27,632)

32,594

(733)

Net increase (decrease) in short-term borrowings 1,575

(1,155)

(1,587)

Proceeds from issuance of long-term debt, net of issuance costs 994

2,485

998

Payments for long-term debt and obligations under capital leases (788)

(134)

(1,781)

Proceeds from issuance of preferred stock 1,470

-

488

Proceeds from exercises of common stock options 14

121

53

Purchases of common stock (1,650)

(2,040)

(1,440)

Excess tax benefit (expense) related to stock-based compensation 72

50

(6)

Repurchases of common stock for employee tax withholding (232)

(189)

(101)

Payments for cash dividends (539)

(486)

(463)

Net cash provided by financing activities 27,688

16,739

3,055

Net (decrease) increase (1,365)

630

397

Cash and due from banks at beginning of period 3,220

2,590

2,193

Cash and due from banks at end of period 1,855

3,220

2,590

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Ratio Analysis

2,014 2,013 2,012 Profitability Ratios Profit Margin 19.79% 21.61% 21.36%ROA 0.74% 0.88% 0.93%ROCE 1.07% 1.30% 1.49% Liquidity Ratios Current Ratio 8.87 7.60 5.63 Times Interest Earned 7.27 7.54 6.81 Gearing Debt/Equity 11.15 10.36 9.05 Degree of Financial Leverage 1.16 1.15 1.17 Asset Management Ratios Total Assets Turnover 0.04 0.04 0.04 Equity Turnover 0.48 0.49 0.46

Intangible Asset Turnover 1.31 1.18 1.13

CASH FLOW ANALYSISCash Flow Ratios Operating Cash flow/ Net Sales (0.05) (0.20) 0.20 Free Cash Flows (FCF) (1,055) -2557 1545FCF/OCF meaning less (negative flows)

Short-term Debt Coverage (0.04) (0.17) 0.15

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COMMON-SIZE STATEMENT OF INCOME

YEAR ENDED DEC 31,


2014 2013 2012Total revenue 100.0% 100.0% 100.0%

Provision for loan losses 0.1% 0.1% 0.0%

Expenses:

Compensation and employee benefits 39.4% 38.4% 39.8%

Information systems and communications 9.5% 9.5% 8.7%

Transaction processing services 7.6% 7.4% 7.3%

Occupancy 4.5% 4.7% 4.9%

Claims resolution 0.0% 0.0% -3.8%

Acquisition and restructuring costs 1.3% 1.1% 2.3%

Professional services 4.3% 4.0% 3.9%

Amortization of other intangible assets 2.2% 2.2% 2.1%

Other 7.3% 5.5% 6.1%

Total expenses 76.0% 72.8% 71.4%

Income before income tax expense 23.9% 27.2% 28.7%

Income tax expense 4.1% 5.6% 7.3%

Net income 19.8% 21.6% 21.4%

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COMMON-SIZE STATEMENT OF POSITON

YEAR ENDED DEC 31,


2014 2013 2012Assets:

Cash and due from banks 0.7% 1.3% 1.2%

Interest-bearing deposits with banks 34.1% 26.4% 22.8%

Securities purchased under resale agreements 0.9% 2.6% 2.3%

Trading account assets 0.3% 0.3% 0.3%

Investment securities available for sale 34.6% 40.8% 49.3%

Investment securities held to maturity (fair value of $17,842,$17,560 and $11661) 6.5% 7.3% 5.1%

Loans and leases (less allowance for losses of $38, $28 and $22) 6.6% 5.5% 5.5%

Premises and equipment (net of accumulated depreciation of $4,599, $4,417 and $4037) 0.7% 0.8% 0.8%

Accrued interest and fees receivable 0.8% 0.9% 0.9%

Goodwill 2.1% 2.5% 2.7%

Other intangible assets 0.7% 1.0% 1.1%

Other assets 11.9% 10.7% 8.1%

Total assets 100.0% 100.0% 100.0%

Liabilities:

Deposits:

Noninterest-bearing 33.7% 36.0% 27.1%

Interest-bearing—U.S. 15.8% 7.3% 11.7%

Interest-bearing—non-U.S. 50.5% 56.7% 61.2%

Total deposits 82.7% 81.8% 81.4%

Securities sold under repurchase agreements 3.5% 3.6% 4.0%

Federal funds purchased 0.0% 0.0% 0.2%

Other short-term borrowings 1.7% 1.7% 2.2%

Accrued expenses and other liabilities 8.0% 8.6% 8.5%

Long-term debt 4.0% 4.4% 3.7%

Total liabilities 100.0% 100.0% 100.0%

Commitments, guarantees and contingencies (notes 10 and 11)

Shareholders’ equity:

Preferred stock, no par, 3,500,000 shares authorized:

Series C, 5,000 shares issued and outstanding 2.3% 2.4% 2.3%

Series D, 7,500 shares issued and outstanding 3.5% 0.0% 0.0%

Series E, 7,500 shares issued and outstanding 3.4% 0.0% 0.0%

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Common stock, $1 par, 750,000,000 shares authorized: 0.0% 0.0% 0.0%

503,880,120, 503,882,841 and 503,900,268 shares issued 2.3% 2.5% 2.4%

Surplus 45.6% 48.0% 46.3%

Retained earnings 69.3% 65.7% 56.3%

Accumulated other comprehensive income (loss) -2.4% -0.5% 1.7%

Treasury stock, at cost (88,684,969,69,754,255 and 45,238,208 shares) -24.0% -18.1% -9.1%

Total shareholders’ equity 100.0% 100.0% 100.0%

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BibliographyDeloitte (2015) 2015 Banking Outlook, UK: Deloitte Development LLC.

Oliver Wyman (2014) The Challenges Ahead , North America: Marsh & McLennan Companies.

State Street (2014) Resolution Plan for State Street Corporation , Massachusetts: State Street Corporation.

State Street Corporation (2015) Annual Report & Accounts - Form 10K, Massachusetts: UNITED STATES SECURITIES AND EXCHANGE COMMISSION.

Wall Street Journal (2015) JPM, Available at: http://quotes.wsj.com/JPM/financials (Accessed: 11th April 2015).

WikiInvest (2015) JPMorgan & Chase - Debt to Equity, Available at: http://www.wikinvest.com/stock/J_P_Morgan_Chase_%28JPM%29/Data/Debt_to_Equity (Accessed: 11th April 2015).

WikiInvest (2015) JPMorgan & Chase - Interest Coverage, Available at: http://www.wikinvest.com/stock/J_P_Morgan_Chase_%28JPM%29/Data/Interest_Coverage_Ratio (Accessed: 11th April 2015).

Yahoo Finance (2105) State Street Corporation (STT), Available at:http://finance.yahoo.com/q/co;_ylt=A0LEV7tnqCpVlHAAYSwPxQt.;_ylu=X3oDMTEzMW0yNTZkBHNlYwNzcgRwb3MDMQRjb2xvA2JmMQR2dGlkA1lIUzAwMV8x?s=STT+Competitors(Accessed: 10th April 2015).

MorningStar (2015) JPM, Available at: http://financials.morningstar.com/ratios/r.html?t=JPM&region=usa&culture=en-US (Accessed: 11th April 2015).

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STT

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