S. Kelley MacDonald - Sr.

VP, IR Edward Resch - Chief Financial Officer and Executive Vice President Joseph Hooley - Chairman, Chief Executive Officer and President

Brian Bedell - ISI Group Inc. J.

Jeffrey Hopson - Stifel, Nicolaus & Co., Inc. Alexander Blostein - Goldman Sachs Group Inc.

Betsy Graseck - Morgan Stanley Robert Lee - Keefe, Bruyette, & Woods, Inc. Howard Chen - Crédit Suisse AG John Stilmar - SunTrust Robinson Humphrey, Inc.

Kenneth Usdin - Jefferies & Company, Inc. Gerard Cassidy - RBC Capital Markets, LLC Michael Mayo - Credit Agricole Securities (USA) Inc.

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 2010 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, April 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 first quarter earnings 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.

Thanks, Kelley, and good morning. I'm pleased to report that 2011 is off to a strong start.

This morning, I'll review some of our recent accomplishments, as well, as provide more detail behind the strength we're seeing in our core businesses. This strength is enabled by our vast global reach and is being driven by our industry and product leadership in key areas, such as alternative asset servicing, investment manager operations outsourcing and exchange traded funds.

During 2010, we established a strong foundation by putting some issues behind us, while continuing to drive growth in our core businesses. Some of our recent accomplishments that support this point include: in our Core Asset Servicing and Asset Management business, our new business wins continue and the pipeline remains robust reflecting significant business opportunity.

We completed the Federal Reserve's capital plan review and have increased our quarterly common share dividend to $0.18 per share and announced the Board's authorization for us to purchase up to $675 million of our common stock in 2011. We continue to maintain our strong capital position and believe we now meet or exceed the 2019 Basel III capital ratios as we understand them and also are in position to respond to acquisition opportunities that are consistent with our overall strategy.

Our Investment Servicing business that we acquired from Intesa Sanpaolo and the acquired Mourant International Financial Administration businesses are exceeding the goals we've set with opportunities for cross-selling. As a result of our expanded capabilities, we have added new clients in both of these businesses.

We acquired Bank of Ireland's Asset Management business in January, and that team has began to work with SSgA to leverage our extensive Global Distribution network. We started to implement the operations in IT transformation program we announced last quarter and expect to see modest net savings this year.

We expect this program to enhance service to our clients and accelerate our ability to bring new products to market. Just looking at the quarter briefly, we achieved positive operating leverage comparing the first quarter of 2011 with the first quarter of 2010 on an operating basis.

During the first quarter of 2011, we added about $300 billion of new servicing mandates. We have already installed about $115 billion and expect to install a remaining $185 billion in 2011.

Of the $390 billion left to be installed as of December 31, 2010, we still have about $275 billion remaining to be installed in 2011. So a total of about $460 billion yet to be installed in 2011.

These wins are diverse in terms of product, service and geography. Of the $300 billion we won in the first quarter, $87 billion or 29% were from U.S.

and $213 billion or 71% were from non-U.S. mandates.

$170 billion from European clients, $36 billion from Asian clients and $7 billion from non-U.S. North American clients.

Significant new wins include servicing for mutual funds, wealth management, hedged funds, as well as investment manager operations outsourcing, in particular Deutsche asset management just renewed its long-term contract with us as did Lufthansa. First Data of Australia signed a new servicing agreement with us and Martin Currie just signed a new investment manager corporations outsourcing agreement with us.

In Europe, we're seeing considerable request for potential clients for hedge fund servicing, usage for funded administration and investment manager operations outsourcing. From the Middle East and Africa, we've seen $17 billion in new wins this quarter.

Among the many encouraging themes I see in the new business pipeline, the demand for servicing alternative assets remains a highlight. In this quarter, we added 46 new clients in our Alternative Investment Servicing business and our assets under administration increased from $660 billion as of December 31, 2010 to $772 billion as of March 31, 2011.

According to the ICFA annual fund survey, we're the largest provider of alternative investment servicing in the world. Hedge funds asset for which we provide administration grew to $459 billion as of March 31, 2011.

Kenneth Heinz, President of Hedge Fund Research, predicts that hedge funds and hedge fund to funds will easily exceed $2 trillion by the end of 2011. Asset owners are increasingly allocating to this asset class and a record number of new funds are being created.

In addition to hedge funds, private equity assets for which we provide administration totaled $243 billion and real estate assets administrated totaled $60 billion as of March 31, 2011. In the first quarter, SSgA won net new business of $29 billion, which excludes the acquisition of Bank of Ireland's Asset Management business.

Closed new mandates totaled $107 billion in the first quarter, of which $17 billion are to be installed later this year. The wins are globally diverse and represent a variety of investment strategies: $109 billion from the U.S., $45 billion from Europe and $14 billion from Asia, as well, as $2 billion from Canada.

Most of the new business continues to be in passive equity strategies. Overall, I continue to be encouraged by the volume and diversity of new business prospects, as well, as the impressive records of wins in competitive situations.

I want to take a minute and comment on our Foreign Exchange business. We have a very comprehensive range of foreign exchange services that we offer to our clients.

First, we execute foreign exchange transactions with clients and investment managers that contact our trading desk directly. These are executed at individually negotiated rates and we term them direct foreign exchange.

Next, clients choose to execute foreign exchange transactions through one of our electronic trading platforms, like Currenex. And thirdly, clients, where their investment managers may elect to route foreign exchange transaction through our Asset Servicing business.

We term this type of transaction indirect foreign exchange. The revenues from our Indirect Foreign Exchange business have been relatively stable throughout 2010 and through the first quarter.

We enhanced the manner in which we have been disclosing our execution trade details to clients in the fourth quarter of 2009. In our view, clients select indirect foreign exchange because it provides considerable benefits to them and their investment managers, including mitigation of operational and settlement risk and operational efficiency, particularly with respect to smaller size transactions.

Ed will provide additional detail about the sizing of our Indirect Foreign Exchange business shortly. Let me now share our view of the current economic environment.

The recovery of the United States appears to be strengthening, but is partially overshadowed by the continuing weakness in housing prices, as well, as increases for the consumer in food and gasoline prices. Market economists are now forecasting real annualized GDP growth in the United States of about 3% for 2011.

In addition, Europe and the Middle East continue to present financial and political uncertainties. The ongoing weaknesses in Portugal, Ireland and Spain are of global concern and the tragic earthquake and tsunami in Japan are adding to the uncertainty.

Addressing the devastation to Japan, I want to take a minute and recognize the exceptional performance of our employees in Japan, who worked under extraordinary circumstances to meet the needs of our Asia-Pacific clients, who themselves were coping with an incredibly difficult situation. They worked for their clients benefit whether from home or from the office, without consideration for their discomfort.

I specifically want to commend them for their efforts and their dedication to our clients. I'll now turn the call over to Ed, who will provide further detail about our financial performance in the first quarter.

And then I'll return to provide comments affecting our outlook for 2011. Then we'll open up the call for questions.

Ed?

Thank you, Jay. Good morning, everyone.

This morning, I'll review three areas. First, the results for the first quarter.

Second, the investment portfolio, investment decisions we made in the first quarter, as well, as our outlook for worldwide interest rates and the impact on our net interest margin; and finally, I'll review our strong capital position. First, the results for the first quarter of 2011 compared with the first and fourth quarters of 2010.

This morning, all of my comments will be based on our operating basis results as defined in today's earnings news release. First, the general overview of the first quarter of 2011 compared with the first quarter of 2010.

The growth in core revenue was due primarily to the three recent acquisitions, the growth in new business and improved equity markets, as well, as an increase in trading services revenue. The improvement in net interest revenue was primarily due to deposits associated with the Servicing business we acquired from Intesa Sanpaolo and stronger deposit flows from other clients.

Trading services revenue improved from the prior year's first quarter, primarily based on stronger foreign exchange revenue, as well as strength in both electronic trading and transition management. Securities finance revenue continued to be weak, primarily due to lower volumes offset partially by higher spreads.

Turning to expenses. Expenses increased from the first quarter of 2010, primarily due to the impact of the three acquisitions.

We earned $0.88 per share on an operating basis, a 17% increase from $0.75 in the first quarter of 2010 on a revenue increase of more than 10%. Now for a detailed look at the results of the first quarter compared to the fourth quarter of 2010.

Our Servicing Fee revenue increased by 3% due to a higher average equity valuations and new business installed. Asset management revenue increased 7% due to favorable average month-end equity valuations and the impact of the acquisition of the Bank of Ireland's Asset Management business in January 2011, providing further details on trading services and securities finance.

Foreign Exchange revenue declined 6% compared to the fourth quarter of 2010 primarily due to lower volatilities, offset partially by higher volumes. Brokerage in other revenue increased 2% compared to the fourth quarter of 2010 primarily due to an increase in electronic trading.

Let me amplify Jay's remarks on our foreign exchange services. I'll review the three principal ways in which we execute foreign exchange transactions with our clients.

First, we enter into foreign exchange transactions with clients and investment managers that contact our trading desk directly. These trades are all at individually negotiated rates.

We refer to this as direct foreign exchange. The second way clients may choose to execute foreign exchange transactions is through one of our electronic trading platforms.

Our compensation is based on a transaction fee for this service. And finally, clients, where their investment managers may elect to route foreign exchange transactions to our dealer or sub-custodians through our asset servicing operation, which we refer to as indirect foreign exchange.

We enter into those trades as a dealer and set rates based upon a published formula. We believe our clients value our indirect foreign exchange service offering because indirect foreign exchange is primarily used by clients and investment managers for smaller value transactions so they can take advantage of a highly efficient trading execution, which mitigates settlement and operational risk and offers potential pricing advantages by determining execution prices for each investment manager on a net basis.

Among other things, for indirect trades, we aggregate multiple orders or lots, determine how much of each currency is needed, set net rates and take care of execution and settlement. As a result, the customer obtains a net rate and avoids the cost of managing the process of executing what generally would be a series of smaller value transactions, and we take responsibility for the risk of errors and settlement failure that otherwise would remain with the customer.

Let me size the portion of the total foreign exchange revenue derived from indirect foreign exchange. Total revenue at State Street in 2010 for all types of foreign exchange transactions was approximately $825 million, about $335 million or 41% of the total foreign exchange revenue was due to indirect transactions.

Approximately $215 million or 64% of the revenue from indirect transactions was from U.S. clients.

And of that U.S. indirect revenue, about $22.5 million or 10% was sourced from U.S.

pension clients. I hope this information helps you better evaluate our Foreign Exchange business.

Compared to the fourth quarter of 2010, securities finance revenue in the first quarter of 2011 declined 4% to $66 million due primarily to lower volumes, offset partially by higher spreads. Securities on loan averaged $359 billion for the first quarter of 2011, down from $368 billion for the fourth quarter of 2010 and down from $412 billion for the first quarter of 2010.

Average lendable assets for the first quarter of 2011 were about $2.34 trillion, up slightly from $2.28 trillion in the fourth quarter of 2010 and from $2.29 trillion in the first quarter of 2010. As of March 31, 2011, the duration of the securities finance book was approximately 21 days, up from 17 days in the fourth quarter of 2010 and flat with the level of the first quarter of 2010.

Processing fees and other revenue increased 30% from the fourth quarter of 2010. The increase is primarily due to revenue from various sources, none of which is individually material.

Net interest revenue declined slightly, about 1% in the first quarter of 2011 compared with the fourth quarter of 2010 despite a slight increase in earning assets. The decline was primarily due to lower yields on fixed rate assets following the repositioning of the investment portfolio in the fourth quarter, as well as two fewer days in the first quarter, offset partially by lower funding costs.

The net interest margin in the first quarter of 2011 was 166 basis points, up 1 basis point from 165 basis points in the fourth quarter. Including conduit-related discount accretion of $62 million in the first quarter of 2011, net interest margin was 185 basis points compared to 207 basis points in the fourth quarter of 2010.

As of March 31, 2011, of the approximately $1.3 billion in discount accretion, we expect to accrete into interest revenue of the remaining terms of the assets. We continue to expect about $200 million, including the $62 million in the first quarter to accrete in 2011.

As you're undoubtedly aware, a significant number of assumptions go into our estimate of future discount accretion over the remaining lives of the assets, including that we hold the assets to maturity, estimated prepayment speeds, expected future credit losses across various assets and sales. In the first quarter of 2011, we recorded about $4 million in net gains from sales of available-for-sale securities and separately about $11 million OTTI resulting in $7 million of net losses related to investment securities.

The OTTI was primarily due to changes in the timing of expected cash flows. We maintain tight controls on expenses due to continuing uncertainty in the global markets.

However, our salaries and benefit expenses increased 4% or $39 million from the fourth quarter of 2010 to $974 million due primarily to the timing of benefits expenses which included higher payroll taxes. Our other expenses line increased about 10% to $231 million due primarily to the impact of $40 million of insurance recoveries in the fourth quarter of 2010.

Our operating basis effective tax rate for the first quarter was 28%, down from 29.5% in the fourth quarter of 2010 due to a favorable geographic mix of earnings. We expect the operating basis effective tax rate in 2011 to be about 28%.

Now let me turn to the investment portfolio. Our investment portfolio as of March 31, 2011, increased about $9 billion to $103.9 billion compared to December 31, 2010.

During the first quarter, we invested about $15 billion in highly rated securities at an average price of $99.82 and with an average yield of 1.17% and a duration of approximately 1.13 years. The $15 billion was primarily composed of the following securities: 96.2% of which are rated AAA; $3 billion in U.S.

Treasury bills; $4.5 billion in agency mortgage-backed securities; $6.6 billion in asset-backed securities, including about $1.9 billion of foreign RMBS, mostly U.K. and Dutch issues; about $1.8 billion in securities backed by credit card receivables; and about $1.6 billion in student loans.

The remainder was invested in smaller amounts in various asset classes. The aggregate net unrealized after-tax loss in our available-for-sale and held-to-maturity portfolios as of March 31, 2011, was $352 million, an improvement of $152 million from December 31, 2010, an improvement of about $1.9 billion or 85% from December 31, 2009.

The improvement in the unrealized after-tax loss compared to December 31, 2010, was due primarily to improvement in spreads partially offset by higher rates. In our investment portfolio slide presentation, we have updated the data through quarter-end for your review.

As of March 31, 2011, our portfolio was 90%, AAA or AA rated. Compared to the fourth quarter of 2010, the duration of the investment portfolio is about 1.59 years down from 1.70 years due to the sale of longer dated fixed rate securities and the purchase of floating rate securities.

The duration gap of the entire balance sheet is 0.4 years, down from 0.53 years at December 31, 2010, due to both the shorter portfolio duration and the issuance of long-term senior debts to prefund next year's maturities. Despite additional downgrades of certain of our securities from major rating agencies, the effect on our investment portfolio was not meaningful and the securities affected are performing well.

The majority of the downgrades were in non-agency ABS and MBS asset classes. I'll now review some of the assumptions we used in determining our 2011 outlook for net interest revenue and net interest margin.

We continue to believe we should invest through the cycle and to invest in U.S. Treasury securities and very highly rated agency mortgage-backed securities and asset-backed securities.

As of March 31, 2011, 57% of our investment portfolio was invested in floating rate securities and 43% in fixed rate securities. We now expect the net interest margin in 2011, to be in the upper half of the 155 to 165 basis point range, down from the level of 168 basis points achieved in 2010.

Our assumptions include that the Bank of England rate remains at 50 basis points; that the ECB incrementally increases rates a total of 75 basis points in 2011; the first 25 basis points of which occurred on April 7, 2011; that the Federal Reserve keeps the overnight Fed funds rate at 25 basis points for all of 2011; and that the yield curve retains its current steepness. We continue to expect the S&P 500 to average about 1,265 in 2011, up about 11% from 1,140, the average in 2010.

Finally, I'll briefly review our capital ratios. In the first quarter, State Street Corp's capital ratios under Basel I remained very strong.

As of March 31, 2011, our total capital ratio stood at 21.6%, our Tier 1 leverage ratio stood at 8.7%, our Tier 1 Capital ratios stood at 19.6% and our TCE ratio was 7.4%. Based on our understanding of the Basel III proposed regulations and the information published by the Basel Committee, we estimate our capital ratios under Basel III as of March 31, 2011, to be our total capital ratio, 12.6%; our Tier 1 leverage ratio to be 6.3%; our Tier 1 Capital Ratio to be 11.4%; and our TCE ratio to be 7.4%.

In conclusion, as we begin 2011, we continue to face headwinds from the low interest rate environment and increasing regulatory clause. However, we are pleased with our operating basis results for the first quarter of 2011.

These results testify to the strength of our revenue in servicing and investment management, as well, as our success in managing net interest revenue and our ability to control expenses. Now I'll turn the call over to Jay to conclude our remarks.

Thanks, Ed. I believe that we took steps over the past two years to improve our risk position and the results of the first quarter testified to the strength of our core business and the expense controls we put in place.

We were pleased to increase our dividend, and receive Board approval to repurchase up to $675 million of our common shares in 2011. The U.S.

recovery seems to be moving ahead and several of the European markets are showing signs of recovery. However, the issues in the Middle East and Japan, as well, as several European countries are waiting on a broader global recovery this year.

We're making progress against our plan to transform our operating model through technology improvements and have been recognized in the industry as a leader in the deployment of private cloud computing. We continue to deepen our relationships with existing clients and to add new clients globally, as you can see by our results in the first quarter.

I'm also very proud of the gains we've made from a corporate social responsibility standpoint. Most recently, we were named among the top 20 greenest banks in the world for our environmental practices, which is an increasingly important area of focus for our clients, our shareholders and our employees.

Overall, I'm pleased with our performance in the first quarter and remain confident in our ability to continue to drive growth in our core businesses. Now Ed and I are happy to take your questions.

Ed, I was wondering if you could just run through again the amount of, in the servicing side, especially the conversions that happened this quarter versus the amount won and then kind of just your forward pipeline on conversion activity.

Ken, let me start that one. I think the -- what we try to do in the script was to build from the commitments in the fourth quarter of last year that are yet to be installed which would be installed in 2011 combined with the uninstalled portion of the first quarter.

And we get to I think it's $460 billion in assets that will -- that are to be installed. And I'd say you could probably use the next couple of quarters as the likely timeframe when they'd be installed.

Is that -- that's your question?

Yes. I just want to try to get a kind of a timeframe pace as far as how that layers in over the course of the year and versus how much was actually installed in the first quarter.

Yes, the -- of the $300 billion that was committed in the first quarter, $115 billion was installed. And we expect to install another $185 billion.

I don't have that for the fourth quarter. And as you know, the nature of these commitments are pretty varied, which is why I think you can generally look at a one to two quarter lag from commitment to implementation.

Right. Okay.

My second question just for Ed. Ed, the core margin was obviously just up a tick, I think most had expected it to be slightly down.

And you're talking to the upper half of the range now. So do we now get the slippage or I guess what would cause any slippage of the margin from here and what factors are in your control to even maintain it from the current 166 level?

Yes. Let me take you through the reasons for the over-performance on the margin in the first quarter, certainly what -- against what we expected.

And the flip side of a lot of these will be risks to the margin for the rest of the year. But the 166 in the quarter was driven by a couple of things.

One, we invested well ahead of what we had planned. We invested $15 billion out of the $26 billion that we had to invest coming in to the year.

We saw good opportunities, both in the U.S. and Europe, to put some trades on, and we did that, so that contributed.

We saw a stronger than anticipated client deposit flows and obviously, if those continue for the rest of the year, that underpins our assertion that we'll be in the upper half of the range for the year. And we also saw, related to that, obviously, earning assets being higher than what we thought coming in.

And the last factor is that we saw a steepening at the short end of the euro curve. And that's pretty important to the performance for this quarter and the rest of the year given that most of the European assets are floaters.

So we got some pickup there.

To follow up, so then, I would presume that the euro hike from this quarter, that's not really fully run rated. And I guess then, one of the factors that would lead to the margin dripping it all from the current 166?

What do we still need to consider, if anything, as far as either reinvestment roll over or what -- any other factors you want to point out to?

Well, I mean, I think it's, again, the -- if stronger client deposit flows which we're assuming will continue, do not assume that -- do not continue, that will be a drag on the margin. If for some reason, the ECB doesn't increase 75 basis points, as we have assumed, that will be a drag on the margin.

If for some other reason, supply is less than we anticipated in terms of getting the remaining $11 billion invested, that could also pull it down. But our assumption now is that, those things will play out and that's the basis for the upper half guidance on the margin.

Okay. I guess I'm just struggling then to see why it wouldn't even just stay above the high end.

Like why would it even reach, broaching the low end if you're starting above the high end?

Well, I mean, we fought coming into the year, 155 to 165 was a good peg for the margin based on what we did in terms of the portfolio repositioning and the effect of that coming in. We assume the pace of reinvestment that we've exceeded because opportunities have presented themselves.

And we assume that the ECB would stay flat all year and they've -- that's not been the case for the first 25 certainly. And based on recent comments, we think it's going up.

So our view has changed. But we're still cautious relative to the rest of the year.

Okay, I understand. Thank you.

Jay, in your earlier comments, you alluded to the fact that expense savings might start coming through in the net basis, I guess in 2011. I guess our understanding was that we're not going to see much of that until 2012 and beyond.

Can you just give us an update of how much, I guess, of net savings you could see from your restructuring plans this year and beyond?

Sure. The ops and IT initiative which we announced in the fourth quarter, 2011 is a year where in the early part of the year, we're doing some investing and then we're starting to generate some of the improvements towards the back end of the year, so on a net basis, it's slightly positive, I think is what we'd say, with the greater gains coming in the out years.

The only thing I'd add to that is since we announced the plan, we announced the plan with some previous activity leading up to it, we're really tracking to that. I think we'll the slight improvement in '11.

And we feel very confident about the long-term plan as well.

Got you. And then just a question on capital, clearly, continues to build quite naturally here in Tier 1 Common over 10% at the Basel III.

I understand you're doing a little bit of a buyback this year. What are the plans, I guess, longer term?

And what steps do, I guess, you need to take to buy back more stock even potentially this year?

I think the way we look at capital and the way we look at it through the capital plan review was more at a total return to shareholder which combines the dividend and the buyback. And I think if you looked at the banks that went through the capital plan review, we're in line with the return to capital of those banks.

I guess the way we look at it prospectively is, we look at acquisition opportunities versus share buybacks. And I continue to think that we'll see some acquisition opportunities particularly as you think about the core custody franchise and some of the subscale players that largely are in Europe.

So we're trying to stay nimble delivering returns, delivering capital to shareholders to the vehicles I mentioned. And yet, also be well-capitalized should acquisitions come about.

Got you. Thanks.

So just to clarify, 3% of your FX revenues relate to U.S. hedging clients, is that correct?

I believe, that's right.

Here, 22 and 8 25.

Correct. That's of the indirect, as we described.

So would that mean you don't see a decline in FX margins as structural?

Keep going.

In other words, I mean, FX, the decline, this simply -- it's down 6% link with you guys. Is this just a seasonal blip, volatility is not as strong?

Or is there something more permanent taking place here?

No, no. I think it's just, to me, it's volatility.

I think we've seen volumes were reasonable during the quarter. And I think you've seen volatility was slightly off in the fourth quarter.

So I don't see anything structural there.

And the pretax margin, do you see that coming down? Just in FX.

The pretax margin in FX. No, I think that the -- I commented it over the preceding five quarters.

The revenues around and again, indirect FX has been relatively stable.

And your acquisition of Currenex, does that differentiate you versus other -- is that helping or is that not much of a factor?

It's absolutely helping in that I think, we've tended to focus on a pretty narrow aspect of the foreign exchange marketplace. I think we're differentiated in that we have a comprehensive range of foreign exchange capabilities.

Currenex being just one but FX Connect also being a market leader in the aggregation and netting of trades. So we've seen those electronic trading businesses grow at double-digit rates, close to 20% for years.

And a separate question. You have $460 billion of business yet to be installed, divided by $22 trillion of assets under custody.

So should we expect a 2% boost in your assets under custody in the first quarter -- in your second quarter? Sorry.

I think -- as I mentioned earlier, it's difficult because you've got -- tends to be the longer the duration of the implementation cycle, the meatier the revenues just because the nature of middle office and the likes of -- it's hard to make it that linear.

And, Mike, remember, some of the wins are cross sell so we already have the custody. We've sold them an additional service like Investment Management or Operational Outsourcing, for example.

If they didn't have it before, then we're just adding that service. We're going to get more revenue for it.

But you won't see it impact the assets under custody.

And then last question is a big picture conceptual question. Looking back a number of years, if in the past, State Street had, had a 1% ROA with leverage of 17x and that allowed you to have a 17% ROE, how do you get a 15% of ROE, if you still have a 1% ROA, with say 10x leverage?

That would imply an ROE of under 15%. Should we expect ROAs to improve from the 1% historical level?

Well, Mike, I think that, that still is an answer that's to be determined based on what the regulators do relative to capital. Too early to tell.

And as we've said previously, once we get certainty in terms of what the new rules are for capital, we'll update our ROE guidance.

How about just the ROA trends? I mean, is there any reason to think your return assets would be better in the future than it's been in the past?

I mean, that depends a lot on the environment, right? If you look in it, it depends how far you back in the past too, I guess.

But I don't think I really want to go down the path of ROA prospectively versus ROA historically until we get the total picture laid out for us.

All right. Thank you.

Speaking on FX, just looking to ask two quarters, for example, your FX sequential growth rates have outperformed basically all the peers. Can you talk about things that you're doing organically to improve that?

Or is there something else that's driven the line in the revenue capture rate?

I think, Brian, it's probably a follow-on to the prior comment, which is foreign exchange can be executed many different ways depending on the customer, the circumstance and the people trade to think [ph] contemplated. And I think having the full suite of capabilities allows us a greater opportunity to capture foreign exchange in whatever form it's being traded in.

So that's probably where I'd leave that.

Okay. And I guess, my question too -- are you effectively or have you effectively cross sold FX in the last two quarters to new clients that came on during 2010?

And also Intesa Sanpaolo, if you effectively increased your cross over?

Yes, I get the question. Yes, I think so.

I mean, I think -- I don't think anything has changed. But one of the consequences of the pipeline and the new business and the new customers is the ancillary activity that connects with that.

So I would say in a more traditional add-a-customer or add-a-service, I think we're doing a pretty good job of penetrating the cross sell. I think in the case of, probably more in case of Intesa Sanpaolo's customers, again, it's probably still early days.

But we're doing a pretty good job of getting in and understanding what other capabilities we could sell. And we have a pretty good track record of past roll ups or acquisitions to do a pretty good job cross-selling.

So it's early days, but we're making some headway.

Great. And then on the pricing in the Asset Servicing business for the new wins that you're bringing on, are they coming on generally higher fee realization rates versus the Legacy business?

I would say, Brian, it's hard to say broadly they're any different than -- I would say though that more of the deals these days, we just, in fact, we just announced a deal today that's representative of this with Martin Currie, represent this middle office componentry which, where we have an excess of 60% market share across the globe, more and more investment managers are looking to their suppliers for a deeper level of outsourcing. We're well positioned there.

And as I said before, the more involved and integrated the sale is, the greater opportunity we have for margins. So I would say the more complex, the better the margins, the more simple, the tighter the pricing.

Okay, okay. And then just lastly, on the expense side, Ed, the other expenses were lower than I expected this quarter.

Was that totally due -- I know we had the $40 million insurance recovery. But was the remainder totally due to lower processing errors?

And is that 230 run rate a realistic run rate for the remainder...

So, I mean, the main driver was both the lack of insurance recovery, as you noted, Brian. But we did have a very good quarter from a processing standpoint so there's a little bit of contribution there.

And as far as that line going forward, you know, it can move around and it's a line that we focus on a lot. And I don't want to go too far out and start making predictions about that line on a quarterly basis for the rest of the year.

But it is a line that has performed pretty well, and we put a lot of emphasis on it.

And then, just one last one. Just on the comp side, we should expect comps to go down in the second quarter I would assume given your retirement eligible options expense in the first?

Is that...

Yes. Yes, again, assuming consistent performance, I mean, I think that the way to think about the comp line relative to revenue over the entirety of the year is in that 40% range that we talked about.

Great. Thanks so much.

Just a quick question with regards to your balance sheet. We've obviously seen a pretty big growth in securities, and that obviously flows through to the net interest margins.

Can you talk to how that happened over the quarter? And whether that still is persistent and whether that's just a general flight to quality or something else that we should be thinking about in terms of the longer term for the business?

Well, I mean, we look at the balance sheet as being a customer-driven balance sheet. So we get the customer deposits mainly out of our Asset Servicing business and have to invest in the portfolios, the vehicle by which we do that.

We had a very busy quarter on the investment portfolio front. I'd say, a very productive quarter.

We got ahead of what we thought of our plan called for in the quarter coming into the year because of opportunities presenting themselves. We had a big challenge given that we did the portfolio repositioning in the fourth quarter.

That, as you may recall, was an incremental $11 billion that we needed to redeploy. We've invested about $15 billion of the total that we had facing us this year.

That's $26 billion in total, $11 billion on the redeployment and $15 billion of regular portfolio runoff. And we've been following the same strategy we've historically followed, which is AAA, AA asset-backed, mortgage-backed in U.S.

Treasuries. So portfolio has been performing pretty well.

As you know, in the quarter, the OTTI levels were fairly, fairly small. And we are obviously dependent on what market opportunities presents as to what we invest in going forward.

But our plan is to follow the same strategy.

John, I would just add that the -- one of the reasons that we highlight so frequently the new business flows and new activities is that, if there's custody involved, deposits flow. So I think there's some correlation between the new business, the growth, the new custody assets and the deposit volumes that flow in.

Okay, thank you. And then with regards to servicing fees and -- can you give us some context in terms of new business wins, whether you're winning them from existing clients, whether the wins are coming from relationships that the new clients had with previous custodial banks?

Or whether it's just really providing ancillary services. On a prior call, we're given a statistic about new business wins being kind of 2/3 from where we're stealing market share.

I was wondering if you could share some context about that and whether it's just really -- and if there's any sort of geographic footprint that also influences your answer. Thank you.

Let me just try to give you a little color on that, John. I'm not sure we can be precise with the percentages.

But a couple of points, one, I referenced the alternatives, I think hedge fund and private equity. That's been a big growth area for us.

And I think if you look at, in fact, just recent as this week there, the forecast about the growth of hedge funds, we see our asset owner customers increase in the allocated the hedge funds. In the hedge fund world, I would say that sales there tend to be -- take away from the competitors or more often it's an internal hedge fund outsourcing activity.

So that would be expansion of market or new business. With regard to -- if I focused on the new business, the higher into the new business, the bigger deals, let's say.

I would say, it tends to be a customer consolidating positions with a single provider. So and I would go back to because it's recent, I think we just put it out very recently, Martin Currie is a little bit of a prototype in that we had a small portion of their business.

They in-sourced middle office, they took a look at their business and decided that they wanted to outsource the middle office and select a single provider. I think it was with three or four different providers.

And so they elected to consolidate all of that with us. The other thing I would say is that, particularly in the upper end of the market where there's a middle office component involved, it's rare that if we really want that customer, that we won't be successful in a competitive bid situation.

So I think our product set is comprehensive and we're doing quite well competitively.

Thank you so much.

Jay, a follow up on the middle market comments. When you pitch your customers, what kind of cost savings do they normally see if they decide to consolidate into one provider?

That's hard to say, Gerard. And I think it happens in two ways, the -- probably the obvious way is, economies in scale, if you consolidate from four providers to one, there's probably some pricing advantage you're going to get in the marketplace.

But I would say, the bigger and more subtle change here is that, even in Martin Currie, that the overhead that they have to deal with four different suppliers, four different data feeds, the cost that they achieve internally by going single supplier is pretty significant. And I would guess probably outweighs the cost of the marginal improvement in pricing they get from suppliers, which is why it's happening.

Okay. Right.

In terms of the new business that you had this quarter, how much of it was middle-market related business?

Well, we had Martin Currie, then we renewed Deutsche. There was one other one we can't mention yet.

I would say, Gerard, again, you look at the bigger deals, there's probably 70-30, a 70-30 split between the bigger deals driving more of the activity. You look at half to 2/3 of it with a middle office component in increasing.

Okay. Is there any way that we, as outsiders, can look at your numbers and figure out what percentage of the business is coming from middle market?

If this is potentially the growth area maybe over the next five to 10 years?

You know, we try to give you a little direction on that, of the $24 trillion in assets that we administer, there's up to $8 trillion now. Is that right, Kelley?

It's about $8.1 trillion.

$8 trillion has the middle office component to it. If you would attract the growth in total, AUA versus growth in middle office, you'd see a stark difference, AU [ph] or the middle office growth being considerably higher from a percentage standpoint.

Let us think about that as we go forward, if there's a way to give you a little bit more color on that.

Sure. And then question for Ed.

With the news with Standard & Poor's yesterday putting the U.S. on a negative credit watch.

If they actually downgraded the U.S. to AA from AAA, would that change your views on how you would invest putting your money to work in U.S.

Treasuries? And also, does it affect the weightings on the risk weighted assets, being on the capital allocation under Basel III, if it is down -- if they are downgraded to AA?

I mean, it wouldn't change our outlook, our approach. I mean, we have about at the end of March, about $6.4 billion in U.S.

Treasuries across the maturity spectrum. Obviously, we hope that, that doesn't happen.

But it would not change our view in terms of how we invest. And relative to the risk weighting, there's no effect, modest, but very small effect.

Thank you.

On the pricing environment, it seems that given the pressure that all of the competitors are seeing, there's maybe a little more religion, but can you comment on the behavior of the markets and your ability to eventually potentially offset some of the negatives that you've seen in terms of interest rates, et cetera to more appropriately price the business that you're providing?

Yes. As far as the pricing environment, I think it's become more visible to our customers through our dialogues around the need to, in the case of existing customers, improve the economics and relationships given some of the fall-off in market-based revenues.

We've actually had some fee increases recently as a result of that. And in addition, the discussion more likely goes to less additional services we can provide to those customers.

So I think that we've been dealing with this market environment for a while. So it's more visible to customers.

And I think that the way we go forward with this is, additional cross sell, additional activities to customers, pricing increases where we can get them. I haven't seen -- I think your question, Jeff, has there been any meaningful change in competitive pricing in the last quarter?

I haven't really detected that.

Okay. Thank you.

Just a couple of follow-ups, one on NIM. As you mentioned, the 155 to 165 not really changing that range and I understand that your view on European rates was improving.

Is there anything that happened that is coming in lower than expected in that outlook? Or you're just being conservative?

Well, there's nothing that's come in that has disappointed us in the first quarter relative to our going-in view of the NIMs for the year.

Okay. And then on the buybacks, have you already started your buyback program?

We don't want to comment on that.

Okay. I was just wondering if there's anything related to understanding the siffy [ph] buffer first before you're going to start that.

Or is there anything related to your timing around whether or not you end up at what level of siffy [ph] buffer.

No, we don't think we need to have clarity on the siffy [ph] buffer before we were do anything.

Okay. Super.

Thanks.

Thanks for the commentary on the ECB hike. Is there a way to more specifically frame the potential impact and timing of that benefit to the overall NIM, Ed?

Yes. I mean, I would think it would ramp during the year.

If you remember, Howard, we thought that there would be a slight degradation in terms of the ramp for the NIM over the year based on our going in assumptions for the year from the 168 in the fourth quarter slightly down on a sequential quarter basis throughout the year settling within our 155 to 165 range if it plays out the way that we are now assuming and the ECB goes up to 175, ratably over the year. Two more 25 basis point hikes, I would expect to not see that ramp down that we saw.

But an improvement to settle in for the average for the year between 155 -- I'm sorry, the upper half of the range, 160 to 165.

Great. Thanks.

And then just within the context of that, what's your current thinking on the deployment of that excess liquidity that you have in Europe? And what do you want to see to more aggressively deploy that?

Well, I mean, we're still conservative in our thinking about Europe. We still have some money at the ECB at the end of the quarter.

We're going to proceed with our plan. Our longer-term objective is to build out the non-dollar portfolio, we've been doing that for several years.

And we'll continue to do that. But only investing in AAA and AA asset-backed and mortgage-backed securities.

So it's continuing what we've been doing.

Okay. Thanks.

And then just finally staying on the theme on Europe. Just -- I know you mentioned you thought that the deals that you've done in 2010 were going well, but can you give us a little bit more detail on just facing of client retention or versus your accretion targets at the time?

That would be helpful. Thanks.

Yes. I would say on that, Howard.

The -- we're above expectations almost on all fronts. The bringing on the integration of the business is well underway now that we've got several quarters of experience with both of those businesses.

The client retention has exceeded expectations which were high anyway. And as I commented on earlier, the cross sell is progressing well.

But there's more to do there. So I think that they're well under way.

They're in a position where, if something else were to come along, I don't think that finishing up those integrations are an impediment to any another activities we might pursue.

Great. Thanks a lot, Jay.

Thanks for taking my question. I know you're pressed for time.

I apologize if you mentioned this earlier in the call, but I jumped on a little bit late. But can you talk a bit about trends in the Asset Management business, kind of what you saw in the quarter?

How you see that playing out? And if we look beyond the recent acquisition of the Bank of Ireland's business, kind of what your appetite is for acquisitions within asset management or where that could be?

Sure. I'm happy to do that, Rob.

We reported net new business of $29 billion and SSgA on the asset management side. And little bit more color on that, still good flows into passive, $31 billion is our passive number, $5 billion in ETFs, a little bit less on the cash side.

So I think consistent with this barbell approach that many investment managers are pursuing, which is more allocation to the alternatives, more allocation to the passive. We continue to pick up mandates on the passive side.

We closed the Bank of Ireland asset management acquisition in early January, that's come on as expected and we're trying to take that fundamental active strategy and deploy it through our distribution network at SSgA. With regard to acquisitions or other outlook, I think we're in a good space relative to our quantitative passive, EPS solutions orientation.

But if there was something that made sense, we always consider ways to incrementally improve our product set or address a new geography. So kind of open-minded on that front.

And if I could ask maybe one follow-up question. I know you've talked about it for today and then prior calls as have some competitors that the fair amount of new business is existing clients, kind of consolidating, well, two things, consolidating business with one provider but also this trend towards middle office outsourcing, which has been going on for a while now.

And, I guess, it appears to have accelerated post crash or crisis. If you look at your book of business considering how important it is to your net new business kind of mining that, if you think of middle office outsourcing in particular, do you feel that there's just still a lot of kind of pipeline out there clients who just haven't gone step point or is there any way you think that, hey, there's another year or two of this trend and then the people who are going to do it have done it and you've got to kind of look somewhere else for some incremental growth.

How do you think of that kind of pipeline?

Yes. It's a -- I would say anecdotally the pipeline field is strong as it's ever been.

So I don't think that there's -- it feels like it's ending anytime soon. I guess -- let me just give you some high level metrics, this might help.

The custody base of business that the global custodians have faced off against is in the $110 trillion kind of range. And we're north of $8 trillion in middle office.

It was 60% of the market that's outsourced. So that gives you some sense of dimensioning.

I do think that the middle office tends to be more appropriate for the larger, more complicated asset managers, although not exclusively. We've seen it across the spectrum.

So I think it's a trend that as you rightly point out that has accelerated through the recent global financial crisis. And I think it's going to run for a while.

No. Just we look forward to talking to you at the close of the second quarter.

Thanks.