State Street Corporation
Q4 2010 Earnings Call Transcript

Published: 19 Jan 2011

[Operator:]

Good morning and welcome to State Street Corporation's Fourth Quarter and Full Year 2010 Call and Webcast. Today's discussion is being broadcast live on State Street's website at www.statestreet.com/stockholder. [Operation Instructions] Now I would like to introduce Kelley MacDonald, Senior Vice President of Investor Relations at State Street. Please go ahead, ma'am.

[S. Kelley MacDonald:]

Before Jay Hooley, our Chairman and Chief Executive Officer and Ed Resch, our Chief Financial Officer begin their remarks, I'd like to remind you that during this call, we will be making forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in State Street's 2009 annual report on Form 10-K and its subsequent filings with the SEC. We encourage you to review those filings, including the sections on Risk Factors concerning any forward-looking statements we make today. Any such forward-looking statements speak only as of today, January 19, 2011, and the corporation does not undertake to revise such forward-looking statements to reflect events or changes after today. I'd also like to remind you that you can find the slide presentation regarding the corporation's investment portfolio, as well as our fourth quarter and full year 2010 earnings press release, which includes reconciliations of non-GAAP measures referred to on this webcast in the Investor Relations portion of our website. Now I'll turn the call over to Jay.

[Joseph Hooley:]

Thanks, Kelley, and good morning. Overall, 2010 was a successful year as we continued to grow the core franchise, put some issues behind us and put in place a new initiative to transform our operating model to position the company for accelerated global growth. We earned $3.40 per share on an operating basis, a slight increase above $3.32 in 2009 on a revenue increase of more than 7%. We continue to be well-positioned and the demand for our core services was strong as evidenced by our Service Fee growth of 18% and Management Fee growth of 8% compared with 2009. Trading services revenue in the fourth quarter improved from the third quarter by 36%, a hopeful sign of recovering capital markets. During the year, Securities Finance revenue was adversely affected by the low interest-rate environment, compressed spreads and rather flat investor demand for securities borrowing. During the fourth quarter, we took important steps to reposition the company, both for the near term, as well as for the future. First, we announced the global multiyear program designed to enhance service excellence and innovation, deliver increased efficiencies in our operating model and position the company for accelerated growth. The program includes operational and informational technology enhancements and targeted cost initiatives, including reductions in force, the first of which was announced in late November. This program is expected to transform our business operating model and is projected to result in an average annual run rate savings of between $575 million and $625 million by the end of 2014. Jim Phalen, Executive Vice President and Head of Global Operations and Technology, will speak in more detail about this program at our Investor and Analyst Forum in February. Second, we sold about $11 billion in securities in order to reposition our investment portfolio, increasing our flexibility in deploying capital, enhancing our capital ratios under evolving regulatory capital standards and reducing our exposure to certain asset classes. This transaction positions us very well for the implementation of Basel III capital requirements, as we currently understand them. We also submitted our capital plan review to the Federal Reserve on January 7, and expect to hear back from them in late March. I'm also pleased to report that we closed the acquisition of Bank of Ireland Asset Management business last week. We expect this business will enhance our active equity offerings through SSgA. Comparing our fourth quarter revenue with that of the third quarter, we achieved growth in every fee revenue line. We achieved operating basis earnings per share of $0.87, an increase of 23% compared with $0.71 in the fourth quarter of last year, and up slightly from the third quarter of 2010. Based on our mandates to be installed, new wins and our strong pipeline, we expect the momentum in Service Fee and Management Fee revenue to continue and are slightly more optimistic about the outlook for our Trading Services business in 2011 than we were in 2010. Additionally, the impact from the Intesa and Mourant acquisitions, as well as the recent acquisition of Bank of Ireland’s Asset Management business supports our revenue outlook. However, we do expect to face headwinds in 2011, principally due to the impact of the continued low rate environment on net interest revenue and Securities Finance, as well as the impact of the investment portfolio repositioning. In addition, based on the changing regulatory environment, we expect to see increases in various regulatory fees and other related costs. I'll make a few comments about our performance, and then I'll ask Ed to provide a more detailed financial perspective. After that, we'll open the call to your questions. On an operating basis, comparing the results of the fourth quarter with the fourth quarter of 2009, total revenue increased 9.6% and total expenses increased 4.4%. As a result, we achieved 520 basis points of positive operating leverage. During 2010, we added $1.4 trillion of new servicing mandates. We've already installed about $970 billion of those in 2010 and expect to install the remaining $390 billion in 2011. In addition, SSgA won $160 billion of new asset management mandates in 2010, of which $40 billion are to be installed in 2011. SSgA continues to see strong flows into passive strategies and EPS. This pace of servicing and management wins and installs give us confidence in the ongoing strength of the Servicing and Management Fee revenue. We have active new pipelines with particular strength outside of the U.S. and in our Alternative Investment Servicing business. The acquisitions of Intesa Sanpaolo's Securities Services business and Mourant International Finance Administration met our expectations and contributed modestly to our financial results for 2010, excluding the merger and integration costs, and are on track to meet the objectives we announced when we closed the transactions. We're optimistic that our market leading position in Italy will lead to cross-sell opportunities and mandates from Italian clients. Our capital ratios continue to remain strong with our Tier 1 risk-based capital ratio at 20.5%, our Tier 1 leverage ratio at 8.2%, and our TCE ratio at 7.6%. Turning to new business, in the fourth quarter of 2010, we won about $300 billion in assets to be serviced. Among the many encouraging themes I see in the new business pipeline, the demand for servicing alternative assets remains a highlight. This quarter, we added 37 new clients in our Alternative Investment Services business, and assets under administration increased from $629 billion as of September 30, 2010 to $660 billion as of December 31, 2010. In the broader Investment Servicing business, we also continue to see strong growth. A few of the highlights include the Retail Employees Superannuation Trust, which is Australia's largest super fund by membership, awarded an AUD $18 billion mandate to provide a comprehensive range of superannuation servicing facilities including custody, fund accounting and complex tax services. The National Employment Savings Trust Corporation of the U.K. has awarded us a 10-year contract for fund administration services. State Street has been appointed by the Workplace Safety and Insurance Board of Ontario to provide a full range of investment services for its pension fund, loss of retirement income fund and insurance fund, totaling CAD $15 billion in assets. RidgeWorth Investments appointed us to provide a full range of investment services, including global custody, accounting, fund administration, as well as transfer agent services for approximately $15 billion in assets in over 40 funds. State Street has been selected by LibreMax Capital LLC to provide fund administration services for its newly launched hedge fund. I'm very proud that in the year which we've grown our business and taken significant actions, including integrating two large acquisitions, we haven't skipped a beat in servicing of our clients. During the fourth quarter, we were ranked #1 for institutional investors in Global Custodian's Annual Custody Survey, and ISS Magazine ranked us #1 custodian in their securities lending survey of beneficial owners. State Street Global Advisors during the quarter also added new mandates, including the New York State Teachers' Retirement System of Albany, which retains State Street Global Advisors to manage $3.9 billion in Passive International Equities. Kåpan Pensioner, a Swedish pension fund for public sector employees selected SSgA as its primary provider for a variety of passive, enhanced and active equity mandates. Oklahoma Firefighters Pension and Retirement System has re-appointed State Street Global Advisors to manage nearly $404 million for index funds. In addition, SSgA continued to expand its relationships and form partnerships with a number of key clients like AT&T, where we expanded the relationship and began managing money for three new pools of assets. Now turning to expenses, given the current environment, we have focused on aggressively controlling expenses in the short term, while calibrating our spending for the longer term against expected business environment. Salaries and benefits grew compared to the fourth quarter of 2009, due to increased incentive compensation and the impact of the two acquisitions, and from the third quarter of 2010 as a result of increased incentive compensation. Let me now share our view of the current economic environment and the outlook for our business for 2011. The tone of the recovery in the United States, while still uncertain, appears to be strengthening compared to the outlook we provided on the third quarter call. Market economists are forecasting real annualized GDP growth in the United States of about 3.2% for 2011, strengthened by the recently passed stimulus package and tax cuts in Washington. Uncertainties persist regarding the pressure from the backlog of foreclosures in the U.S. marketplace. Also, employment is not expected to materially strengthen and credit continues to be tight. The housing sector appears to have bottomed out at depressed levels in most geographic areas, but is mixed by region. And while holiday shopping exceeded expectations, recent consumer spending has been cautious. In addition, Europe continues to present uncertainties. The daily average of the S&P 500 for 2010 was about 1,140, slightly ahead of our outlook of 1,125. For 2011, we're expecting the S&P 500 to average 1,265, up 11% over the average in 2010. I'll now turn the call over to Ed, who'll provide further detail about our financial performance in the fourth quarter and full year for 2010, and then I'll return to provide comments affecting our outlook for 2011, and then we'll open up the call to questions. Ed?

[Edward Resch:]

Thank you, Jay, and good morning, everyone. This morning, I'll review four areas

[Joseph Hooley:]

Thanks, Ed. In 2010, we took some significant steps that are expected to positively impact our company for the next several years. The new technology and business initiative will support our global growth but very importantly, will enhance our service and increase our operating efficiency. It represents a significant advance in our business operating model. And as I mentioned, we'll provide more details at our February Investor and Analyst Forum. In addition, the investment portfolio reposition improves our flexibility in deploying capital, and also positions us very well for the implementation of Basel III capital requirements, far ahead of their required implementation dates. Looking at our revenue outlook, the momentum we've enjoyed in Servicing Fee revenue appears to be continuing, with $390 billion in assets yet to be installed in 2011, a very strong pipeline and excellent early success in cross-selling services to our two newly acquired companies, Intesa and Mourant. We also have expectations that the Bank of Ireland Asset Management business will bring cross-sell opportunities. In asset management, State Street Global Advisors continues to position itself to benefit from increased demand from passive strategies, ETF investments and defined contribution plans. The improvement in trading services revenue in the fourth quarter compared to the third quarter is a hopeful indication that global markets are starting to repair. Our industry continues to face pressure from the low level of worldwide administered rates, which are expected to continue to affect net interest revenue this year and impact spreads in the Securities Finance business. Given the continued uncertainty in the global economy and in the capital markets, we are not providing a view on earnings per share for 2011. However, I believe we've given you enough outlook on our various business segments to guide you in forming your expectations. Overall, I'm pleased with our performance in 2010, and believe that we're very well-positioned to continue to drive growth on our core businesses in 2011 and beyond. Now, Ed and I are happy to take your questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Robert Lee with KBW.

[Robert Lee:]

Is it possible to get maybe a little bit more color on new business trends within asset management and asset servicing? I mean, specifically in asset management, are you seeing any change in demand for active strategies vis-à-vis passive strategies?

[Joseph Hooley:]

Yes, let me take that, Robert. I would say our net new business -- let me take asset management first in the fourth quarter was, I think, it was down $12 billion. But looking underneath that, money funds were down $30 billion and we had some fixed income declines of $20 billion. Coming the other way was close to $40 billion in new equity flows. So what you could read from that, and obviously as a bigger passive player, we continue to see strong growth into passive strategies, both in traditional passive, through the institutional channel, but also through ETFs. So I would say you've started to see some of what I think you see in the market, which is a little more risk taking on the equity side and it showed up more in the passive side for us through ETFs and traditional strategies. And did you have a similar question on the asset servicing business?

[Robert Lee:]

Yes. I think I missed some of your earlier comments, so could you maybe just touch on a little bit of where you're seeing the pipeline there is -- one of the things I'm curious about is in the outsourcing mandates, I mean, are you still seeing a strong pipeline there or was there kind of a post-crisis kind of bubble of RFPs that's maybe kind of working its way through and kind of settle down a little bit or how should we think of that?

[Joseph Hooley:]

Yes, I would say you should look at that as continued momentum, and I would say that not only about servicing fees generally, well-diversified U.S., non-U.S., across asset classes, but also the specific comment about the middle office or investment operations, we see no let up. And in fact, I would predict that'll go the other way as more outsourced middle office and more credibility gets established in the outsourcing of middle office, we'll see more demand. And we have seen more demand. I'd also tell you that in my observation, most of the big deals, three quarters of the big deals have a middle office component these days so it also would suggest that particularly in the upper end of the market, institutions are getting more comfortable with outsourcing a deeper level of administration and record keeping, all of which I think is quite positive to our story.

[Robert Lee:]

Okay, great. If I could just follow up on compensation, I mean, a pretty significant, I guess, sequential increase, and, Ed, I know you mentioned that a lot of it was incentive comp. How much of that was maybe kind of a true up from earlier in the year? And what should we be thinking going forward in terms of kind of an ongoing kind of run rate comp expense? I mean, is this kind of a new level or is there kind of just some seasonality or catch-up in this?

[Edward Resch:]

I think it's more in the line of just finishing out the year. We obviously accrue every quarter based on what we think the year is going to be and how the company is performing, and the uptick in the fourth quarter was just reflective of that. I wouldn't necessarily call it seasonality you can expect every year. It just depends on how the results ultimately fall out. In terms of thinking about it over the longer term, I'd point you back to how we think about it, again, over the longer term, not necessarily every year, which is compensation in total as a function of total revenues. And that should be in the range of 40%.

[Operator:]

Your next question comes from the line of Ken Usdin with Jefferies.

[Kenneth Usdin:]

Ed, I was wondering if you can walk us through just the progression of how the re-investments work through the balance sheet and how that affects NIM as we move through 2011? So does NIM first still have to go down before it could come up? And what's the difference in the environment during the portfolio between getting to that bottom end or the top end of the NIM guidance?

[Edward Resch:]

Yes, part of the pattern that NIM exhibits this year, Ken, will be a function of how quickly we're able to reinvest. We have a large task in front of us this year, given the portfolio repositioning and the normal run-off and maturities of the portfolio. We estimate we have about $26 billion to re-invest, a portion of which we already got behind us subsequent to the transaction that we did in the portfolio, repositioning transaction we did. But we still have a much larger amount than normal to re-invest this year. So it depends, is the answer. And it depends in large part on what we see as the availability of high-quality securities that we want to invest in. Our expectation is that supply in 2011 of those types of securities could be less than they were in 2011. Certainly, we expect them to be below pre-crisis levels. And the pattern on NIM is largely dependent on the pace with which we invest. Obviously, if the curve were to flatten and our assumptions in the rate environment don't pan out, there's a risk to that level of NIM. I would say it's probably more toward the lower end than going through the lower end if the curve flattens, but it depends on to what extent it flattens. If we have more continued concerns in Europe, and we have Europe as part of our investment strategy, that could also affect some of the pace with which we invest this year, which could lower NIM toward the 155 basis point level earlier in the year. And the converse of some of those statements that I just made is true. If we see better supply than what we're thinking and we're able to re-investment more quickly, we could be at the top end of the NIM range more quickly this year. So it's a long answer to a question, but it's not something that is something we have within our control totally.

[Kenneth Usdin:]

Okay. And then just even more simply then, does just the repositioning coming through the numbers partway through the fourth quarter still have to reset in the first quarter or not necessarily? So does NIM have to go down in 1Q off of 4Q or not necessarily?

[Edward Resch:]

Not necessarily. Maybe the risk is more to the downside from 4Q, but we're talking 1.65 for the fourth quarter's NIM. So probably more risk to the downside, but not a lot, I’d say.

[Kenneth Usdin:]

Okay. You gave us the update on Basel III, where your 9.4% on Tier 1 common versus 9% when you showed it in December. So can you just remind us that once you get the results from the stress test, what your priorities would be in terms of capital redeployment dividend versus buyback? And then also, Jay, maybe you can layer in your thoughts on acquisitions and how you think through that in your capital planning?

[Joseph Hooley:]

Sure, happy to do that, Ken. As we stated, we've put our submission in towards the end of the year, the capital plan review, as you stated. We think we're in very strong position given the repositioning we did in December relative to capital adequacy. Priorities, clearly, to reinstate the dividend, we'd like to get that back to where we were before we pull back on the dividend. And then from there, it's really a matter of, as you pointed out, buybacks versus the use of capital for acquisitions. And I would say, I'm reasonably optimistic that we're going to see some acquisition opportunities as we go into 2011. As you've heard me say before in the Trust and Custody side of our business, acquisition candidates largely sit in Europe, and I think that as the European scenario plays out with banks, I continue to think that we'll see opportunities for acquisitions. And depending on price and other factors, we would probably view that as constructive long term for the stock.

[Kenneth Usdin:]

Okay, great. Just to clarify, Ed, in your comments about expenses for the year, you have the upward pressure that you mentioned on regulatory and the absence of insurance companies. But how do we think about the recent reductions in headcount and how that plays through with regards to, not necessarily just the comp and the revenue ratio, but even just the overall growth of expenses?

[Edward Resch:]

Yes, I mean, all of our comments can reflect the effect of the recent reduction in staff, okay. So when we make a comment about we think expenses could be pressured for those factors that you mention, that's within the context of us recognizing the positive effect on expenses of the reduction that we already undertook.

[Kenneth Usdin:]

And do you expect then that with the outlook of NI being down, could 2011 be a year where you do have positive operating leverage then?

[Edward Resch:]

Well, I mean, from a planning standpoint, our intention always is to go into a year targeting positive operating leverage on an annual basis.

[Operator:]

Your next question comes from the line of Alex Blostein with Goldman Sachs.

[Alexander Blostein:]

So maybe just one more time on expenses, just maybe asked another way. So if you look at your expenses this quarter, non-interest obviously, and then you sort of add back the insurance recovery and then on top of that, you layer on higher reg-related cost, you're running at about $1.7 billion per quarter. Is that a decent run rate to think about in 2011? And then as a follow-up to that, can you layer on your cost savings expectations you're introducing, so $545 million to $625 million by 2014, and I guess, how that's going to play into the numbers in 2011 and beyond?

[Edward Resch:]

Well, I mean, I don't want to get too far down the path of committing to a quarterly run rate number on expenses. But I think that the add-on of approximately $50 million to $100 million, as well as the lack of insurance recovery that we plan is a good starting point to think about next year's expenses. But we don't know specifically what the regulatory cost incrementally will be, whether it's $50 million or $100 million, or something even more or a little bit less than that. Just don't know yet. So I mean, that's an important element to the thinking about what the quarterly expenses could be. In terms of the transformational work that we're doing both in operations and IT, we said when we announced the plan that we expected a slight benefit to our 2011 expenses. That is also reflected in our comments on our expense expectations for next year. The principal driver of that was already addressed in an earlier question, which is the reduction-in-force effect, which will obviously reduce personnel expenses in 2011.

[Joseph Hooley:]

I guess, the other piece, Alex, to your question, the $575 million to $625 million run rate savings. There's some of that in '11, but the bulk of that savings starts to ramp up in '12, '13 and '14, and we'll take you through that in a little more detail in the February analyst meeting.

[Alexander Blostein:]

Okay, fair enough. And then maybe a follow-up on capital, can you guys just walk us through how you got to your risk-weighted asset estimate for instance on Basel I versus Basel III?

[Edward Resch:]

Yes, I can take you through that. And I'll take you from Basel I to Basel III, both sets of numbers are what we published, okay. And putting aside the capital-related adjustments, which I guess you get, there are basically four categories of adjustments the risk-weighted assets going from Basel I to Basel III

[Alexander Blostein:]

Got it. I was hoping you could give the actual numbers in each bucket. I don't know if you can.

[Edward Resch:]

Well, I don't think we want to go to that level of granularity on this call. But when we move forward, I think we'll probably get a little more granular, maybe at the Investor Day.

[Alexander Blostein:]

Got you. On your NIM estimate, do you guys assume that the entire $5 billion of Intesa-related deposits will be re-invested next year or no?

[Edward Resch:]

No.

[Operator:]

Your next question comes from the line of John Stilmar and with SunTrust Robinson.

[John Stilmar:]

Really quickly with regards to the expenses in the $50 million to $100 million that you cited, can you give a little bit more clarity, is that just for 2011? Or should we include that as sort of an ongoing portion of the expense base? And maybe a little clarity of what potentially some of those drivers are underneath the regulatory? Are these deposit related expenses or are these personnel expenses? If you give a little bit more color it would be super helpful.

[Edward Resch:]

Yes, I mean, I think the two broad categories of the expense increases we see are potential increases in FDIC-related fees. And depending on how that ultimately sorts out, whatever it is, it more likely than not will be a permanent run rate-type of expense, at least over the shorter, intermediate term. And then the other category of expenses are, I would say, probably more temporary in nature, which are costs, as we think of it mainly personnel and professional services and consultants to implement the various aspects of study and implement the various aspects of Dodd-Frank.

[John Stilmar:]

Okay, perfect. And then as we look at Trading Services revenues, you spoke about the, obviously, volatility and new business wins. How much of the momentum from this quarter were driven by market phenomenon versus advancements with customers and greater product positioning?

[Joseph Hooley:]

Yes, I would say, John, probably more the latter, which is generally, as you see equity markets behave like they did in the last half of the quarter, that's a signal of more risk-taking, more cross-border assets, which ultimately gives us greater opportunity for volume in the foreign exchange we execute for our customers. So I think it's largely volume-related as a consequence of good markets, good equity markets in the fourth quarter. I think from a standpoint of gaining share, which is the other way, I think, to ask your question, we think we're doing well. But mostly, volume and a little bit of volatility-related is what drove the upside. So the follow-on would be if equity markets continue to behave positively, then we'd expect that foreign exchange would perform well.

[John Stilmar:]

Perfect. And then finally, as we look forward in your capital planning and we look forward to the timing, you talked about acquisitions. On another call this morning, there was a comment that the acquisition environment seems to be cooling off and you seem to be taking a different approach this morning. The question is, are there specific opportunities that you see that are possibilities? And are those possibilities things that -- what's the timing that we should be thinking about sort of as you lay out the multiyear strategic plan for your business? Is this the year of capital redeployment and then we look at '12 and '13 as potentially returning to regenerating excess capital? And at that point in time, you're going to be potentially looking to make further acquisitions? Is there some sort of horizon with regards to those comments? And I'll turn it over to you.

[Joseph Hooley:]

' Sure. It's difficult to predict, I would say, the acquisition opportunities come when they come. And we're always looking at a number of different things across our business lines. My own view is that if you go back to, some of our principal acquisition targets would be European-based banks with subscale custody books of business, not unlike the Intesa transaction that we executed in 2010. And I would predict, given the bank uncertainty that we'll see opportunities presented to ourselves over the next year or two. So I think the acquisitions will be more front-ended. And if they come and they look attractive and they're in the right space and they are priced right, then we'll be aggressive.

[Operator:]

Your next question comes from the line of Mike Mayo with CLSA. Michael Mayo - Credit Agricole Securities (USA) Inc. Can you comment on the expense guidance, $50 million to $100 million higher, how much of that is regulatory and how much is running parallel systems from some of the changes you're undergoing?

[Edward Resch:]

Depends on what shakes out with the FDIC really, Mike. But I'd say for now probably 50/50. Michael Mayo - Credit Agricole Securities (USA) Inc. Okay. And how long should the parallel systems be in place? Would that half of the $50 million to $100 million stay in place for a couple of years?

[Edward Resch:]

Well, it's not really parallel systems, it's professional services, consulting help, legal advice, et cetera. I mean, I guess it depends, but certainly, for most of 2011, I wouldn't expect it spilling much over if we're right in our estimates of how long it's going to take to assess all this and figure it out in detail that it would spill over significantly into 2012. Michael Mayo - Credit Agricole Securities (USA) Inc. And then separately, $390 billion of new business, how does that translate into revenues and when do you think that should hit?

[Joseph Hooley:]

Yes. I think it's always hard to translate the $390 million, which is the amount of asset service that are yet to be implemented in 2011. I think that probably the better way to look at it is look at the momentum in the service fee line over the last couple of quarters, and I would suggest that the momentum will continue, both based on the outstanding mandates yet to be installed plus the robustness of the new business pipeline. Michael Mayo - Credit Agricole Securities (USA) Inc. All right. So is that a second half of the year event?

[Joseph Hooley:]

I'm sorry, Mike, the $390 million? Michael Mayo - Credit Agricole Securities (USA) Inc. Yes.

[Joseph Hooley:]

No, the $390 million will mostly ladder in, in the first half of the year. Michael Mayo - Credit Agricole Securities (USA) Inc. Okay. And then lastly, ETFs have been on fire. Your position there, what are you seeing in that business and what are the opportunities outside the U.S.?

[Joseph Hooley:]

Yes, I mean, the ETF marketplace, you rightly said, is growing rapidly. We're in the middle of that game. We're a leader, we're investing heavily to introduce new products. We review the opportunities outside the U.S. as better than inside the U.S. and we would even favor Asia, which is almost nascent from an ETF penetration standpoint. So we see opportunity across the board. It's a game of innovation, bringing out new products that can generate good fees and growth. I think the ETF marketplace historically has been one of first to market, has a huge advantage. So being able to innovate, bringing out new strategies, introducing them quickly and gaining market share is the way you look at it. But we're very positive and optimistic about the continued growth in our current position. Michael Mayo - Credit Agricole Securities (USA) Inc. Do you have a partner, or would it help to have a partner, say, in Asia?

[Joseph Hooley:]

I would say, I don't know if you recall back, earlier this year, we partnered with Nuveen. Nuveen has an expertise in municipal bond management and we packaged some municipal ETFs, where Nuveen was the manager, we were the distributor. We're always looking at ways where we can take the infrastructure that we built around ETFs and bring more likely investment product versus distribution. So yes, we're open and always having discussions about how we can leverage the position we have in the ETF market. Michael Mayo - Credit Agricole Securities (USA) Inc. I was thinking geographically, such as in Asia.

[Joseph Hooley:]

Yes, geographically, it could be an investment play as well as a distribution play. Currently, we think that because it's such a nascent market that we have a good chance to establish a beachhead and do that on our own, but we would entertain, if there's ways to get there quicker with partnerships, we're always open to those discussions.

[Operator:]

[Operator Instructions] Your next question comes from the line of Gerard Cassidy with RBC.

[Gerard Cassidy:]

Jay, can you tell us on the growth of the mandates you won last year, the $1.4 trillion, how does that stack up to prior years? And then the $1.4 trillion, if you break it out through U.S. versus non-U.S. businesses?

[Joseph Hooley:]

Yes, let me take a stab at that, Gerard. The $1.4 trillion is up from prior years.

[S. Kelley MacDonald:]

About $300 billion...

[Joseph Hooley:]

Yes, I want to say we were $1.1 trillion, so $1.1 trillion goes to $1.4 trillion in '10. The U.S./non-U.S. mix, if directionally, if we're 60/40, it's probably -- my guess is 50% of it is outside the U.S. So disproportionately outside the U.S. by some amount. I would also offer that it's pretty well diversified, which is encouraging. Not only by geography, but pension funds, alternatives, which I continue to mention on these calls is a segment of the market that seems like it's regained its luster, hedge funds in particular.

[Gerard Cassidy:]

Is there any common theme from your customers that you've won? What have they told you, why they chose you?

[Joseph Hooley:]

Well, I think it's situation dependent. But we have a deep share in most of these markets. We have, I think, the most comprehensive product coverage depending on what they're considering, whether it's middle office all the way through to shareholder record keeping in some cases. And I think it's reputation. I think that we're viewed as, and some of the surveys bear this out, as the quality provider in most of these segments. So it’s product capability and reputation for executing.

[Operator:]

Your next question comes from the line of Howard Chen with Crédit Suisse.

[Howard Chen:]

Back to the portfolio restructuring actions, I'm just curious at how you ultimately settled on the level of securities to dispose of? Why not take out all the non-investment grade securities and is that something that's potentially still on the table?

[Edward Resch:]

Well, to answer the last question first, as we sit here right now, no, it's not on the table. I mean, we think we've achieved the right level of optimization, Howard, which is how we thought about the transaction. And we started off by thinking about the securities as well we've always thought about them, which is to say, that they were performing. We were comfortable with them. We thought we had a pretty well-situated portfolio. But as we looked into the future, we tried to optimize among several variables. First, we wanted to obtain the highest level of capital flexibility we could at the lowest cost. We wanted to sell the securities that, while we were comfortable with them, were in our assessment and our advisors' assessment, were potentially most "at risk" of OTTI future downgrades. Important to note there, Howard, that we did not just sell all the lower-rated securities. We sold some investment grade-rated securities that we thought were at risk as part of the transaction. And then lastly, we wanted to have the lowest impact on 2011's earnings and the lowest loss to our shareholders on the sale. So we tried to optimize among those several variables when we came up with the final selection that we ultimately sold.

[Operator:]

Your next question comes from the line of Andrew Marquardt with Evercore.

[Andrew Marquardt:]

Just want to circle back on the reasoning again behind not giving the full-year guidance. I know things are uncertain. But is it because things are more uncertain or because you've given enough guidance? Or is it just kind of a new trend, which is not a bad idea anyway?

[Joseph Hooley:]

I just think there is uncertainty. We went through several of the uncertain aspects that affect our business. And I also think it's probably more productive for both of us to give you a sense of how we're thinking about different revenue line items and what affects those line items that are subject to market volatility, and leave it at that. I just think it's the more prudent way to go forward given some of the uncertainty.

[Andrew Marquardt:]

Good. So this is something we should expect going forward, just giving the guideposts, going forward, on a quarterly basis?

[Joseph Hooley:]

Correct.

[Andrew Marquardt:]

Okay, good. And then separately, I just want to make sure that the long-term financial goals, are those still intact? Or should we also start to reconsider some of those, given some of the different structural changes, higher capital ratios, et cetera, in terms of those goals?

[Joseph Hooley:]

Yes, I would say to that, Andrew, in a normal environment, I still believe that the long-term financial targets that we've put out there are intact. Now having said that, there’s a revenue target of 8% to 12%, EPS, of 10% to 15%. There's also a return on equity target of 14% to 17% and until this capital requirement settles down, it's going to be hard to recalibrate. So I would say again, the ROE target is going to be subject to recalibration once capital requirements settle. And hopefully that will be in the first half of this year.

[Andrew Marquardt:]

Got it. But you still feel good with revenue and earnings?

[Joseph Hooley:]

We do.

[S. Kelley MacDonald:]

Cynthia, we're going to need to close now. We've kind of used up our time and plus some. Jay?

[Joseph Hooley:]

Thanks, everybody. And I look forward to seeing you at the February analyst call in just a few short weeks. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.