Good morning. And welcome to the State Street Corporation's First Quarter of 2016 Earnings Conference Call and Webcast. Today's discussion is being broadcast live on State Street's Web site at www.statestreet.com/stockholder. This conference call is also being recorded for a replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the express written authorization from the State Street Corporation. The only authorized broadcast on this call will be housed on the State Street Web site. Now, I would like to introduce Anthony Ostler, Senior Vice President of Investor Relations at State Street.

Thanks, Therese. Good morning and thank you all for joining us. On our call today are Chairman and CEO, Jay Hooley will speak first. Then, Mike Bell, our CFO will take you through our first quarter 2016 earnings by presentation which is available for download in the Investor Relations section of our Web site, www.statestreet.com. Afterwards we will be happy to take questions. During the Q&A, please limit your questions to 2 questions and then requeue. Before we get started, I would like to remind you that today's presentation will include operating basis and other measures presented on a non-GAAP basis. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measures are available in the appendix to our 1Q 2016 slide presentation. In addition today's presentation will contain forward-looking statements, actual results may differ materially from those statements due to a variety of important factors such as those factors referenced in our discussion today, in our 1Q 2016 slide presentation under the heading, forward-looking statements and in our SEC filings including the risk factor section of our 2015 Form 10-K. Our forward-looking statements speak only as of today and we disclaim any obligation to update them even if our views change. As with the past couple of quarters, we have instituted a new pattern of releasing our financial results on the fourth Wednesday of the month following each quarter end. As such, we expect to hold our second quarter earnings call on Wednesday, July 27 2016. Now, let me turn it over to Jay.

Thanks, Anthony and good morning, everyone. Despite the challenging environment, I'm pleased with the progress we've made during the quarter on the five strategic priorities I outlined for you at our Investor Day in February. These priorities will help us to transform State Street, compete in the new environment and deliver value in the short-term. As a reminder, these priorities are, one, to become a digital leader in financial services, to drive growth from our core franchise, to invest in new products that will enhance revenue and drive differentiation, increased our focus on expense management and leverage our strong capital position to continue to return capital to shareholders. As you can see on Slide 4 of the slide deck, we've outlined for you highlights of our progress so far this year against those five priorities. First, on becoming a digital leader in financial services. We are investing in becoming a digital leader in financial services through State Street Beacon; our journey to digitize core processes will deliver an enhanced client experience and generate $550 million in annual pretax net run rate expense savings by the end of 2020. Our clients are already begin to see the results of our investments through faster and more consistent delivery of services impacting our clients operations and driving improved ranking within distribution channels. We are also actively engaged in evaluating new technologies such as block-chain. We remain on track to achieve State Street Beacon related annualized run rate savings of $100 million by the end of this year. That amount will be reflected in our 2017 results. As we indicated could be the case at our Investor Day, we did take a pretax restructuring charge of $97 million in the first quarter related to Beacon. Second, we expect our core franchise to continue to…

Thank you, Jay. Good morning, everyone. This morning before I start my review of our operating basis results, I like to note that our GAAP basis results for the first quarter included pretax restructuring costs of $97 million related to State Street Beacon including the exit of our Futures Clearing Business. Now turn to Slide 8 in the slide presentation for a summary of our operating basis results for 1Q 2016. 1Q 2016 results reflect softness in our fee revenue primarily driven by lower global equity markets, partially offset by strong expense control. Operating basis EPS for 1Q 2016 decreased to $0.98 a share from $1.16 in 1Q 2015 and decreased from $1.21 in 4Q 2015. Our first quarter results in 2015 and 2016 included the seasonal effect of deferred incentive comp for retirement eligible employees and payroll taxes. Importantly, total expenses were approximately flat compared to the year ago quarter. And excluding the noted seasonal retirement eligible expenses and payroll taxes, total expenses were approximately flat compared to 4Q 2015. Regarding capital in 1Q 2016, we declared a common stock dividend of $0.34 a share and purchased approximately $325 million of our common stock. Moving now to Slide 9, 1Q 2016 fee revenue decreased 3.6% while expenses were approximately flat versus a year ago. Weakness in global equity markets and elevated 1Q 2015 FX revenue resulting from the Swiss National Bank actions at that time contributed to the decrease in fee revenue relative to the year ago quarter. I'll now turn to Slide 11 for a review of our 1Q 2016 operating basis revenues. Servicing fees decreased from the year ago quarter primarily due to the lower global equity markets and the impact of the stronger U.S. dollar partially offset by net new business. The decrease in the international…

Thanks Mike. Therese, we are now available to open the call for questions.

[Operator Instructions] Your first question comes from the line of Ashley Serrao [Credit Suisse].

Good morning.

Good morning.

First question just on expenses and Beacon, I'm curious what the run rate benefit to 1Q results was?

Ashley, good morning, it's Mike. In Q1 as compared to Q4, so on a sequential basis, we had net savings of approximately $7 million. And we had noted that the Investor Day that we did expect a fair amount of spending for Beacon and we had that but as I said the net savings in Q1 was approximately $7 million sequentially.

Okay, so still fairly early innings there. Okay. And just two, and if I look at net interest revenue this quarter and the sequential jump in NIM, what drove the increasing yields on the other asset bucket?

I would point to a couple of things. And I wouldn't characterize it, Ashley, as just the impact on the other asset bucket, but there were a couple of things that broadly helped us. First of all, as we've discussed before, we have a significant amount of our balance sheet that is in floating rate assets. So that's a combination of the Central Bank deposits that we have here in the U.S. That includes the floating rate securities in the securities portfolio about half of the floating rate securities are in U.S., so that's approximately $18 billion. And then, we also, our loans tend to be also a floating rate asset. So basically the floating rate assets in our balance sheet increased, as you would expect, based upon the increase in short-term market interest rates. In addition, we also were able to capture a wider spread on client repo and we also saw increased netting for repos. So those two things combined increased what you see on the average rates earned and paid page that increased significantly the average rate for the assets that are in the repo securities category. Ad then, in the other interest earning asset line that you specifically ask about, that's our enhanced custody asset and basically that just reflects the market rate increase as a result of short-term rates being higher.

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

Thanks. Just -- one more follow-up on the NII front then Mike. So, do you normalize for some of those helpers because if I take what you're saying about that and just think about the fact that you've left the -- without rate band unchanged, it would seem that even to get down to that high-end of that X rate span, you're talking about more like a 5, 10 type of net interest income run rate. So, can you just kind of help us just walk through how much of that first quarter goes away, and then, the other typical pushes and pulls in terms of any lingering yield compression versus balance sheet shrinkage we should be thinking about.

Sure, absolutely. Ken, good morning. The couple of things that we expect in the static rate scenario, Ken, the couple of things that we expect to put downward pressure on our NIR under the static scenario would be number one, the grind in the fixed rate portion of the portfolio. So I mentioned that approximately $36 billion of our portfolio is floating rate about half of that is in the U.S. that benefited from the short-term rate hike. About half of that is outside the U.S., which obviously did not benefit from the short-term rate hike. But in the fixed rate category, which is approximately $66 billion of the portfolio, we're seeing this grind where the rate on the investments that are maturing is approximately 100 to 150 basis points higher than the new fixed rate investments that we're making with the proceeds from those maturities. So that grind over the course of the year is a negative. And as we talked about before, in Europe, the situation is still relatively negative in that not only are the short-term interest rates negative with the ECB, but in addition to that because of the quantitative easing program over there, spreads are really teeny as well. So, the grind in the portfolio in Europe as well is putting downward pressure. So in the static rates scenario, we would expect those to be the big drivers of the lower NIR in the next several quarters. If instead though, we get a couple more Fed fund hikes, we wouldn't expect them to be quite as accretive as what we saw in first quarter, but obviously, we would expect it to be net-net helpful as we get a higher rate on the floating rate assets that I mentioned in response to Ashley's question.

Great. Thanks Mike. And just a second question on expenses. Great start on the flat year-over-year, but you're also keeping up to 2% full year into your point about the compliance builds and also the volatility quarter-to-quarter. We are also implying that expenses do have a distinct upward trail from here? Because it would seem like you are on a better trajectory. Why couldn't you do better than that 2% guidance you had given us at Investor Day?

Yes. First, Ken, I appreciate the compliment on the first quarter results. We are really pleased with that. And as we talked about at the Investor Day, we continue to look at really every signal area of expenses. And I think we did a particularly good job in Q1 at reducing the outside consulting expenses, some of it regulatory, cost some of it not regulatory. We reduced travel expenses significantly in Q1. But, I do expect that there'll be a march up in regulatory expenses in Q2, Q3, Q4 as a result of dealing with the higher expectations. Now, having said that, we'll continue to look at every area of expense. As Jay talked about, project Beacon continued to be on track for the expected $100 million savings for the full year. But, again, between the regulatory costs and net new business that we expect to be coming onboard that will need expense to service. We thought it made sense to stick with the -- to say up to 2% on expense growth. And obviously, a lot of where we'll end up will also relate to where the fee revenue ends up as well.

Your next question comes from the line of Glenn Schorr [Evercore].

Hi. Thanks very much. Two business questions. First one is on enhanced custody and agency lending. You mentioned the wider spreads, or I should say the growth in the higher short-term rates. But, curious on just overall balances in progress of the business, it seems to be growing fast. You talked about it in the past, but what are the goals in terms of how much you want to grow at and what risk -- let me rephrase that, what capital charges go along with growing that business?

Glenn, let me start that one. You've seen not just this quarter, but progressive quarter's good performance, out performance in securities lending. And you're right this quarter was a combination of agency and enhanced custody. I would say over a longer cycle, it's really been enhanced custody that has driven the disproportionate growth. And we expect that will continue. That continues to be high demand in our -- not only hedge, but in our traditional client base to use enhanced custody as opposed to some of the traditional means of credit. And we don't see much limitation. I'd say most of the business growth that we're seeing quarter-to-quarter it is existing clients doing more credit extension with us. So, we built out the product, I think I mentioned last quarter. We're building it out in Europe and Asia as we would do normally for all of our products. The ability to net the securities lending back against the broader portfolio makes it an attractive proposition from a capital standpoint. So net-net, we've seen continued demand. We don't see much in the way of capacity constraints and we think we've figured out how to make this attractive from return on capital standpoint.

ROE better than the overall company's ROE, I'm just curious if it's driving -- you ever increasing capital ratios or that's just all regulatory…

Glenn, it's a little bit less, but I would say steadily improving over the last couple of years.

Okay. I appreciate it. Thanks, Jay.

Thank you. Your next question comes from Alex Blostein [Goldman Sachs].

Good morning, guys. Question on the Living Will issue from a couple weeks ago. You know, what do you guys as far as the next steps go, what do you expect to do to address the issues especially when it comes to the capital concern that came out of their statement? And do anticipate this to have any impact on CCAR for you guys, whether probably not so much in the quantitative piece but more on the qualitative?

Sure. Good morning, Alex, it's Mike. First of all, I don't view the capital piece, the capital item that was noted as a deficiency as being a significant problem for us to deal with. And I do not expect at this point in time that that would have an impact on CCAR. And obviously, Fed will make the judgments that they'll make, but I have no indication at this point that that would have a negative impact. So, really what we're focused on now is better understanding the regulatory expectations both for the October 1 deliverable as well as the submission next July 1. And so that more broadly is what we are focus on. And as Jay indicated in his prepared remarks, we are certainly committed to doing everything in our power to meeting their expectations.

Got you. And then, Jay, follow up for you on the GE acquisition. You guys talked about pretty robust growth, I guess in that business. But my understanding is that something like 90% or so, CIO versus GE pension assets that are obviously sticky there. But I not sure how growth those are. So give us a sense of what the organic growth has been in that business prior to your acquisition, and then maybe what you guys anticipate to see from again the organic growth part of the business?

Sure. Happy to take that one up, Alex. As you point out, a good deal of the assets are GE assets, both their pension which is how the whole thing got started, outsourcing the CIO function of GE's pension assets. But they've also been successful in attracting some other big names in the outsourced CIO marketplace. So I think that if you just look at that segment of the market particularly against an environment were rates are likely to be low for a protracted period of time. We think that's a growth market. And we think by kind of unshackling GE from GE and making it part of the State Street that will be more attractive provider of services in the outsourced CIO market. So they've had some growth on their own, we've also had some growth. By combining it we think we can grow at a faster rate. So that's core to the growth opportunity. But also core of the growth opportunity is, you've heard us talk before about a natural place where we play very effectively in the asset management world is in solutions. And whether it's a target date fund or outsourced CIO or many other versions of solutions. And we had a little bit of a deficit in several asset classes particularly alternatives. And so again, by taking our natural solutions capabilities and enhancing it with some of GE's very credible asset management components in the alternatives, real estate, private equity and hedge, all three, we think we can accelerate our solutions growth. So it's really taking, I'd say a very high-quality and stable asset management organization and bedding at State Street and true synergies of the revenue side. And the OCIO and solutions segments of the market.

Okay. Thanks.

Thank you. Your next question comes from Jim Mitchell [Buckingham Research].

Hey, good morning. Maybe, you could talk a little bit about euro deposits. It sounds like you raised the fee charged on those. Have you seen any runoff that's material or is it a little too early to tell we see that in the second quarter. How do we think about your clients' reaction to raising rates?

Sure, Jim. Good morning, it's Mike.

Good morning.

We did as you suggested, we did increase the rate that we are charging for euro deposits. We did see approximately $2 billion of run-off on average Q1 versus Q4. The discussions with clients are ongoing. I would say at this point, it feels like a relatively well-managed situation, but it's something that we're obviously paying close attention to given the challenging conditions in Europe.

Hey Jim, let me just chip in something. I would say on this whole charging for negative rates, we were market leaders in that. And as I look across the landscape, we're not alone anymore. So whether it's the U.S. banks, the European banks, the environment has shifted to be supportive of this activity. So I think that helps from a standpoint of being able to raise rates and retain the deposits that we want.

Right. And so it seems like deposits have held in a little bit better than maybe you expect it. Is that part of the upside we see in NII this quarter relative to your full year forecast?

Jim, I would characterize it as they are pretty much tracking with what we expected.

Okay. And if I could just ask one on the Tier 1 capital at the bank, it seems like you downstream some capital there. Is that true? How is that accomplished to boost the Tier 1 on the SLR bank?

Sure. In terms of just administratively how we did it, we basically just retained some earnings at the bank as opposed to dividending that from the bank to the HoldCo. But as we've talked about in the past, Jim, we do recognize that we've got some flexibility in terms of what assets we hold at the HoldCo versus what we have at the bank. So this was really normal management in line with our plan to be sure that we were above 6% in time for 118. Obviously, the fact that the balance sheet got smaller as well was also helpful in that regard.

Right. Okay, great. Thanks.

Thank you. Your next question comes from Brian Bedell [Deutsche Bank].

Hi. Good morning, folks.

Good morning, Brian.

Mike, just to circle back on the securities repo line, the yield going from 236 to 586, it's about -- looks like around $30 million sequential increase. Can you just explain that dynamic again and what you would expect the normalized rate to be in the second quarter on that?

Sure, Brian. Well, first of all, I wouldn't focus as much on the 586 as I would on just the overall contribution from that line item. But again, first talk about the change in the numerator. As we talked about in one of the earlier questions, we did earn a higher spread, a wider spread on client repo in the first quarter. Basically, as short-term market interest rates increased, we were able to capture that in our margin. The thing that makes the average rate jump as much as it did though, is that we also expanded netting in the quarter. So as a result, we actually had expanded activity for our clients in the quarter, but we were able to net more of it. So the average balance you see there dropped by about $0.5 billion or about 16% sequentially. But it was -- that was really from the netting. So the overall activity expanded. The spreads expanded, but as a result, the average balance been dropped. I wouldn't say, I think that was a combination of good management and good market conditions. And I would expect that market conditions will remain relatively good in the near-term, but it's something certainly we can't guarantee and it's something that we manage and monitor everyday.

It seem as though $30 million, you would view as somewhat or that $30 million increase, you would view as somewhat sustainable or would you see that river back somewhat?

I think that, again, time will tell Brian. I don't have a perfect crystal ball. But, I would expect that perhaps the majority of the sequential increase in those spreads should be sustained over the next couple of quarters. But again, it will be depending upon market conditions.

Okay, great. And then, maybe Jay, if you want to comment a little bit about the typical dividend arbitrage season and in Europe there's been some discussion of curtailing that. Are you seeing the same type of activity that you typically see in securities lending and FX trading coming into the second quarter or do you expect that to be a little bit strange?

Brian you point out second quarter is a seasonal peak for us with regard to the dividend activity. It's been a lot of attention on that over the last couple of years. So, we probably see some slight diminishment from what we've seen in past. I don't think it's material, but probably not quite at the peak it's been in past years because of all the attention that trade has received.

Great, thank you. I'll get back in the queue for some follow-ups. Thanks.

Your next question comes Betsy Graseck [Morgan Stanley].

I just wanted to begin on two things. One was on the Beacon project, you indicated the restructuring charge of $97 million this quarter. Obviously, a net savings this quarter of $7 million. I know you're investing $500 million, you're investing $40 million to get a $500 million benefit over five years, but could you give us a sense to how we should think about the investment and the space as we go through the rest of this year? Because I thought it was front-end loaded? So I just wanted to make sure I have the numbers right there.

Sure, Betsy. It's Mike. I do expect that both the benefits as well as the investments that we're making in project Beacon will both steadily increase over the course of 2016. I do expect that the net benefit will increase each of those three quarters. On the other hand, as I mentioned earlier, I also do expect to see some upward pressure on regulatory cost. So again, that's several moving parts, but I would think in Beacon in particular as both investments continuing to increase and savings continuing to increase.

And all of the $97 million in investment was largely in severance and I'm assuming that's the -- kind of below the net line number. You're not anticipating any investments in the Beacon project to be in operating expenses are you?

Yes. We are Betsy. In fact, we did see investments in that area in operating expenses that was both in compensation, but it's also in the information systems line. And again, I would expect to see additional spending in the information systems line over the course of 2016.

And then, on your slide, you indicated, obviously that strategic priority to be a digital leader in financial services. Could you just break apart a little bit the one-liner you have there actively testing new technologies such as block-chain? Could you give us a sense as to what you are doing there?

Happy to do that, Betsy. This is Jay. Block-chain as we see, it's appropriately a lot of attention and I think it's -- to me it's synonymous with digitization generally. I think if I would've put some perspective on -- put into perspective Beacon and block-chain, I would say that Beacon is our effort internally to digitize within the four walls of State Street. I think that importantly, the whole developed markets, financial services infrastructure needs to be digitized and that's going to require standardization between firms and between activities. So that's really where I see block-chain being most relevant. We have internally within our Beacon effort, we've got I think it's four, maybe five pilots going on to use block-chain as a means to digitize within State Street, linked to other firms. So let me give you the best example, maybe be the most easily explained example. Bank loan processing has been an activity that State Street has developed a significant share of the market and processing a bank loan requires many intermediaries to come together in a common ledger to exchange information. So we have a pilot going on in our bank loan processing group where we're using block-chain. And we've got agreement from all the counterparties to participate in a block-chain pilot around bank loan processing. So what that would do is take an activity where there's process improvements and technology that we need to do internally within State Street, but it would extend it to other counterparties. So we've got several of those going on which we think could be helpful to us. I think that probably the bigger comment I would make is that we'll digitize our own environment, but it will require standards across the industry and again, block-chain maybe one of those. We are participating in a group called R3. I think there's up to 16 banking institutions that are trying to figure out what the application -- what the best applications are to use block-chain in order to create standards inter-company, inter-industry. And so I think we're going to absolutely do what we need to do to digitize our environment. I think the home run here is, if we can get some standards developed around how we will interoperate from a digital standpoint and I think block-chain could be, if it's not block-chain it will be something else, one of the standards that emerged that allow the interoperability at a digital level in the whole industry. I don't know if that confuses or helps, but that's how I view it. We can control, we can control that's what we're doing with Beacon. But in order for this really to work, the industry needs to digitize. Block-chain…

That's helpful, it's just a question of, is it a product by product and what kind of timeframe do you see to potentially take something like the pilot that you're working on to either have a go or no go decision with some benefits to you.

Yes. I guess is, it's product by product at this point. And so bank loans is one of those products, one of those services. I'd be surprised if within a year we don't know whether it would be the right answer to that issue. And I think as with many things, if we get a bunch of financial institutions to converge around a problem and use a new tool. if successful, it will grow from there. And I think it's got a decent chance of succeeding. But, it'll be one of many solutions versus the silver bullet.

Yes. Got it. Thank you.

Thank you. Your next question comes from Adam Beatty [Bank of America].

Good morning. I have a question about product strategies and ETFs. Appreciate the details earlier. It seems like State Street and others have come out with some fairly niche offerings recently. And the question is with a lot of the big indexes and exposures already being covered including by some State Street products, is that the feature of ETF innovation kind of like television where there is 300 channels, where everybody can see exactly what they want? Or if that's not the whole story, how does that fit into your overall product strategy? Thanks.

I think I appreciate the question, Adam I just remind you that our ETF strategy is really two tracks. One is to continue to build out the distribution, which we're doing in the U.S. and also Europe. And then to your point, it's enhancing the product. And I'd say, a lot of the basic beta strategies have been consumed in an ETF product. But then, you get to the next level of customized indexes. So the SHE index that I described in our prepared comments is using a -- is developing a strategy and developed in this case, this is the first time we have self indexed. So we built the index, back tested it, and then, packaged it in an ETF. You'll see more and more of that happening. In fact, we are not the only ones doing that I think in the broad beta and ETF space that's a theme. The other thing I would say is that I would point to maybe the partnership we have with DoubleLine where they're taking active fixed income strategies. They are the manager, who are packaging it in the ETF and disturbing it. And I think you're going to see more and more encroachment into traditional products basis and I come a little short because I'm not quite sold yet, you'll take active equity products, for instance, and wrap it in an ETF, but others would take the other side of that argument. So I don't really see much limitation for investment strategies being able to be wrapped and packaged in an ETF structure and distributed to both institutions and the retail market space. So we have, I would say that SSGA has deployed kind of an open platform strategy where if we can create the index in the case of SHE, manufacture and distribute, then we will. But if there's an interesting investment idea outside of SSGA, we're willing to discuss packaging and distributing which we've done not just with DoubleLine but with Nuveen, MFS and several other firms. Hope that helps.

Yes, it does Thank you very much, Jay. And then, a question on the OCIO business in the context of asset servicing, how much synergy -- revenue synergy would you expect in terms of asset servicing, and if so in what areas? Is it possible that the GE acquisition benefits from being housed from that standpoint in an organization like State Street ?

Yes. I think it's a good question. And one of the reasons we have a 25-year-old relationship with GE is, we've been the back end of the front end OCIO business that GE has run over these years. So I think that as I mentioned before, the Outsourcing of the Chief Investment Officer function for these defined benefit plans is likely to be a growing opportunity, growth opportunity. You're already seeing it today. The fact that we can go in and not only offer the front office expertise of how to run these plans, how to speak the language of DB to trustees and other customer facing, pension organizations, but also be able to fully integrate the back office complete with asset servicing, middle office securities lending everything that goes with it, is all relevant here. So I see the more OCIO business we get it should naturally bring all the middle and back office business with it.

Excellent. Thanks again.

Thank you. Your question comes from Brennan Hawken with UBS.

Hey, good morning. Just one quick follow-up at this point. The decline in other expenses, I think the implication was that you had some benefit here. I think you weighed out the consultant expenses coming down but the reason why the guy didn't go up is because you've got some upward pressure pending from potential Living Will spend and such. Am I paraphrasing that correctly? Am I reading through your comments right or should you, can you clarify please?

Brennan, it's Mike. I think those are fair comments, but I wouldn't limit the upward regulatory cost pressure to just the Living Wills. I think it's broader than that. But other than that your comment is very fair.

Okay. And then, is there a way to unpack the other expense result here that was better than expected and how much independently you think might be sustainable beyond then the pending upward pressure from here? Is there a way to think about that separately?

Well, I would just remind you that we're still guiding to up to 2% overall expense growth year-over-year excluding the acquisition of GE Asset Management. So the fact that that's the case, says to me that we are going to manage expenses really in aggregate. And obviously, our preferred route would be to continue to build in-house capabilities, hire full-time people to manage and run these regulatory and compliance activities and rely less and less on outside consultants. And so if we continue to be successful in that area, then I think that line item will likely run below last year's. But again, it really is a question of managing those priorities in aggregate as opposed to just focusing on one line item.

Okay. Thanks so much.

Thank you. Your next question comes from Vivek Juneja with JPMorgan.

Vivek?

It looks like Vivek withdrew his question. Your next question comes from Brian Kleinhanzl with KBW.

Yes. Thanks and good morning. Quick question on the GE Asset Management, and I know you gave guidance as to what the expected accretion to be for one year and also you want to retain 90% with regards to the AUM. But, we would assume that the one-year is just because that's when the lockup period is, for those assets or is there a longer lockup on the assets being acquired?

Brian, I wouldn't relate the two. Basically, we're focused on the first 12 months because we wanted to give you a time period at which we expect this to be accretive to EPS. And so that really is irrespective of any kind of lockup period with the GE plan.

And I'd add, Brian that our expectation is that the 90% plus business that we retained will have a long life to it.

So I guess asked differently, when does the lockup period end?

There is not a contractual lockup period. Basically we're confident that we can continue to meet the GE pension plans needs and that's what we will be focused on.

Okay. Thanks. And then, just a second question. What's the impact on the revenues from the exit of the Futures Clearing business, I guess what's the impact on the pretax margin as well?

Sure. So Brian, the SCM business earned $9 million in fees in full year 2015. And the expenses were greater than that but we are part of the overall savings that I talked about earlier in terms of Beacon. So I wouldn't be more specific at this point.

Okay. Great. Thanks for taking my questions.

Thank you. Your next question comes from Geoffrey Elliott with Autonomous Research.

Good morning. Thank you for taking the question. On the resolution plan, could you talk about what you need to do their and how much of that is simply around changing the plan versus how much is around making changes in the way business is structured, the amounts of liquidity that you hold, how capital is allocated between different types of fees and so on?

So, Geoff, it's Mike. I would say it is early days to be real specific on the actions that will -- it will take to ultimately meet the regulatory expectations. You saw the same information that we did in terms of the keeper that lays out expectations for July 1, 2017 submission. And I think we'll be in ongoing dialogue with both the Federal Reserve as well as the FDIC over the next at least 12 months to make sure that we specifically understand them. So I think it's going to be a combination of all the things that you just described there's likely to be some additional infrastructure to be built. Some of it will be additional modeling capabilities. Some of it will be additional monitoring capabilities and also as you correctly indicated, I would expect to see additional legal entity simplification over time as well. But I really think it's a little bit too early to try to be specific until we have more ongoing dialogue with both groups.

Thank you. And then, just to follow-up on the previous question on the not being a contractual lockup on the GE Asset Management assets, why not -- had a thought that when your acquiring a manager and the vast majority of the assets are in-house, that would be absolutely critical to making sure you don't just get the one-year accretion, but the accretion, three, four, five, 10 years out?

I would say, Geoff it's a pension plan, so it has a list of restrictions. If you look at SSG, probably the biggest segment that they manage for our pension plans and they do that and as long as they are fulfilling their return expectations, it's unlikely that that changes. And so, GE has been managing this plan for a long time. These are -- we see in our business, the OCIO market very sticky assets. So I don't frankly view it as -- I view it as not a concern at all as long as we do what we are being asked to do, which we do everyday for many customers around the world, then we think these assets will be with us for a time. And the fact that we are going to combine it with our business gives us more scale and expertise and it will make us the more attractive counterparty for other pension plans that want to outsource that. I view it as a stable, sticky series of assets with some capabilities we don't have today that will allow us to grow the base.

Thank you.

Great.

Your next question comes from Gerard Cassidy with RBC.

Thank you. Can you guys share with us on the new business when it's on the net asset servicing side of about $264 billion, what percentage of that was the first State Super Australia win? And then second, what's the pipeline work for the second quarter?

Let me take that one Gerard. I can't give you a First State Super, but what I would tell you is that of $264 billion a little bit unusually, 50% of that came from Asia Pacific. So we've been running more probably 60/40 U.S., non-U.S for this quarter, was more 70:30, 30% being U.S., 70% non-U.S. So good progress in Asia Pacific , really anchored in not only Australia which I highlighted, but we've also seen some movement in Japan where we've seen the first outsourcing of investment trust funds, something we've been pursuing for a long time. So that's the first question. The second, pipelines are quite full. I think that, I said this before, but if you look at the asset owner and maybe more specifically, the asset management segment, between difficulty and achieving above benchmark returns to increasing regulatory pressure, we've never seen the demand for things like middle office outsourcing that we have on our plate right now. And importantly, in that particular product, there's a willingness to accept standardized services. So I feel very good about the pipeline, not only from a geographic standpoint, but across, in particular asset managers, but asset service -- asset owners as well.

Thank you. And then, maybe Mike, when we look at your average balance sheet that give us in the supplement on Page 11. I noticed that the interest-bearing deposits in the United States, the yield on that or the cost, I should say to you guys, jumped from 23 basis points to 40 basis points. And then, quite a bit different than some of your peers. What caused it to jump up that much?

Sure, Gerard. First of all, the main driver in that category is actually the cost of our wholesale CDs. So we have approximately $15 billion on average of wholesale CD balances in Q1. And those moved with LIBOR rates. And so that's the driver of the sequential increase there. If we strip those out and just at what the interest-bearing DDA that was pretty close to flat sequentially. So it's really the wholesale CDs.

And the CDs as a percentage of the total that you just gave us, is that consistent with those prior periods? Or is it a greater percentage today than it was in those prior periods?

It's probably a slightly smaller percentage today at $15 billion. We use the wholesale CDs as a management tool around liquidity and those balances were actually a little bit higher in 2015. I remember the rates were lower because LIBOR was lower in 2015 than what it is in Q1 2016.

Great. Thank you.

Thank you. Your next question comes from Vivek Juneja with JPMorgan.

Hi. Thanks for taking my questions. A couple of things. Firstly, Mike, just following up on the question you're talking about on the repo market, you said majority of the increasing spreads can be sustained in the next couple of quarters? Can you give us a little more color on what's going on in that market structurally that's causing this widening in spreads and that will sustain it?

Sure, Vivek. I mean really it's a combination of the fact that short-term interest rates have obviously gone up with the Fed fund hike. And it's also just a function of supply and demand. And so we will monitor those conditions carefully, but I see nothing that would suggest that that's going to evaporate here in Q2. So again, it's something that we will pay close attention to.

Okay. Thanks. Just shifting gears, Jay, to look at your asset management business, if I look at the operating margin in the fourth quarter was 13%, and if I look at full year asset management margin was 19 and change, 15% for the fourth quarter and 19 in change, the really low margin compared to peers. You talked a little bit about specifically that business what you can do to first even moving things like ETF, what you can do to accelerate the operating margin improvement and why so far behind peers?

Sure, Vivek. I'm happy to take that. We're not pleased with the margin in the SSGA business, I think I said that before. And we do think by reorienting around the strategic priorities that we laid out back in February which are anchored in ETF solutions, OCIO as an additional category that we're getting the right level of focus and investing at the right amount in order to drive really top-line and also create more efficiency through the focus. And I think that if you look over an extended period of time, you would have seen we've hit a trough with regard to returns. And I feel like the investments that we've been making are starting to create some traction. And I look at ETFs and really solutions as being the cornerstone of that. In addition to some of the positioning we have in markets outside the U.S., again, I would look to those same two cornerstone elements. So we're working on it. We think we're making the right investments. I think focus is important. SSGA in some respects does not have a lot of pure comps given what it does. And we're trying to be very good at a couple of things and do them well globally. And I think we're on the right track.

And do you think it will be sooner in SSGA in terms of -- you're not talking about overall company operating margin improvement, do you see SSGA doing same timeframe or sooner, Jay, compared to the servicing business?

I got two views on that Vivek. One is, yes, sooner, because we're making proportionally more investments than the SSGA business. And I think, you also need to come back to one of the comments we made around the GE acquisition. As we look at our different businesses within State Street and look at returns, SSGA has disproportionately higher return as does a businesslike Global Exchange. So as we look at investing in areas that we think have natural growth upside and in addition would be accretive to our return on equity, we are going to proportionally lead in that direction. And so I think for those reasons, I would expect that you would see SSGA improve sooner than the rest of the franchise.

Thank you.

Okay. Thank you. And our final question comes from Brian Bedell, it's a follow-up question with Deutsche Bank.

The assets under administration looks like there was a significant decline in the pension product area from $5.5 trillion to $5.2 trillion. I was just wondering what drove that?

Nothing, specific Brian. It's really the negative impact of markets that's the big driver there.

On the pension side okay. The 6% drop linked quarter, was it all market related?

I wouldn't say all market related. I don't have that desegregation right at my finger tips. But the main drop in the AUA was in fact from markets.

Nothing going on from a loss business standpoint.

Okay. That's what I was getting at. Yes. Okay, great. And thanks for that. And then just tax rate guidance, this would imply that would be towards the higher end for the next three quarters given it was 29% for 1Q. Is that fair?

Yes. I think that's fair Brian. First of all, the operating tax rate that we provide is heavily impacted by tax advantaged investments. And so just based on the seasonal pattern of tax advantage investments, we tend to see the pattern that you're describing. So nothing particularly surprising there and we experienced a similar pattern in 2015.

Got it. And just as lastly the -- you talked about the Futures Clearing business, but the impact of the Reuters business, was doing that two times in Reuters and is that suppose to the FX trading line or is that in a different line from the revenue side?

That's in the -- let's say it's in the other -- it's in the fees line item in brokerage and other fees line item.

Okay. Is that -- can you size that just for modeling?

I don't have that rate at my finger tips. It's relatively small. We can follow-up with you offline on that one Brian.

Yes. Perfect. Thank you. Thanks a lot guys.

Thank you. And that was our final question.

Thanks, Therese, and thanks everybody for joining us this morning. We look forward to talking with everybody at the end of the second quarter.

Ladies and gentlemen, thank you for joining today's conference. Thank you for your participation. That does conclude the conference. You may now disconnect.