State Street Corp.'s executives do not expect BlackRock Inc.'s transfer of $1 trillion in client assets away from the bank to affect the company's financials until the second half of 2017.
State Street executives noted that the company has a longstanding relationship with BlackRock that dates back to 1988. They added that the company reached out to State Street while it was pondering the decision. "While disappointed, we appreciated where they were coming from," Chairman and CEO Joseph Hooley added.
BlackRock has hired JPMorgan Chase & Co.'s Corporate and Investment Bank to provide custody and fund services for more than $1 trillion of its clients' assets. During their fourth-quarter 2016 earnings conference call, State Street executives noted that the transfer largely involves common trust funds. The executives noted that the transfer will not be complete until 2018, and State Street will remain a significant service provider to BlackRock.
"Importantly, we continue to be BlackRock's service provider in their high growth [exchange-traded fund] business, and we have a significant global relationship with BlackRock. So, I view it as kind of a one-off adjustment for BlackRock to get better diversified," Hooley added.
Providing an update on the GE Asset Management Inc. deal, the executives noted that the transaction contributed estimated operating-basis fee revenue of approximately $129 million and operating-basis expenses of approximately $115 million, in the first six months ending Dec. 31, 2016, after deal completion, excluding merger and integration charges and financing costs. The executives expect the fee revenue from the transaction to exceed $270 million by June 30, 2017.
The executives provided additional guidance for 2017. They expect the company to grow its operating-basis total fee revenue by 4% to 6%. The executives also think that State Street Beacon, its multiyear transformation program, will be able to deliver pretax expense savings of $140 million in 2017.
State Street expects the first two possible rate hikes in 2017 to be significantly accretive. However, they noted that the significance and benefit from the third rate hike will depend on the timing of the decision.