Participants

Elizabeth Lynn; Executive Vice President & Global Head of Investor Relations; State Street Corp

Ronald O'Hanley; Chairman of the Board & Chief Executive Officer; State Street Corp

Mark Keating; Executive Vice President & Interim Chief Financial Officer; State Street Corp

Ken Usdin; Analyst; Autonomous US

Jim Mitchell; Analyst; Seaport Global Securities LLC

Alex Blostein; Analyst; Goldman Sachs & Company, Inc.

Glenn Schorr; Analyst; Evercore ISI Institutional Equities

Mike Mayo; Analyst; Wells Fargo Securities, LLC

Betsy Graseck; Analyst; Morgan Stanley & Co. LLC

David Smith; Analyst; Truist Securities, Inc.

Vivek Juneja; Analyst; J.P. Morgan Securities LLC

Gerard Cassidy; Analyst; RBC Capital Markets Wealth Management

Presentation

Operator

Good morning and welcome to State Street Corporation's first-quarter 2025 earnings conference call and webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street. (Operator Instructions)
Today's discussion is being broadcasted live on State Street's website at investors.statestreet.com. This conference call is also being recorded for 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 expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website.
Now I would like to hand the call over to Elizabeth Lynn.

Elizabeth Lynn

Good morning and thank you all for joining us. On our call today, our CEO, Ron O'Hanley will speak first. Then Mark Keating, our interim CFO, will take you through our first-quarter 2025 earnings presentation, which is available for download on the Investor Relations section of our website, investors.statestreet.com. Afterward, we'll be happy to take questions.
Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our presentation.
In addition, today's call will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors such as those referenced in our discussion today and in our SEC filings, including the risk factor section of our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our views should change.
With that, let me turn it over to Ron.

Ronald O'Hanley

Thank you, Liz, and good morning, everyone. At present, investors are contending with notable uncertainty. While much attention is focused on US trade policy, uncertainty has also arisen around other topics such as taxes, geopolitics, interest rates, deficits, and deregulation. This wide range of uncertainties, some negative and others positive, has introduced significant volatility into global financial markets and investor sentiment.
During times such as these, our purpose to create better outcomes for the world's investors and the people they serve is even more relevant. Our financial strength combined with our deep investment services, markets, software, and asset management capabilities uniquely positions us to serve as our client's essential partner.
Throughout its 230-year-plus history, State Street has supported both clients and financial markets for many periods of uncertainty. By focusing on those things that we can control and preparing for those that we can't, State Street has developed a track record of financial and operational resilience and adaptability, which has enabled State Street and our clients to navigate through difficult periods. I believe as we progress through the current environment, we will strengthen our position with clients even further.
Turning to slide 2 of our investor presentation, I will cover our first-quarter highlights before Mark takes you through the quarter in more detail. During the turbulence experienced in -- despite the turbulence in financial markets in March, we delivered growth, solid financial performance, and good business momentum in Q1.
Year over year, fee revenue increased by 6%, while total revenue rose by a healthy 5%. We achieved both positive fee and total operating leverage, resulting in year-over-year margin expansion, excluding notable items, with State Street's pre-tax margin reaching 30% excluding seasonal expenses.
Supported by capital return, EPS reached $2.04 as compared to $1.37 in Q1 last year, which included the impact of an FDIC special assessment. Excluding notable items, year-over-year earnings per share growth was a very strong 21%.
Turning to business performance, we generated new asset servicing AUC/A wins of $182 billion within investment services in the first quarter. New servicing fee revenue wins totaled $55 million with the majority coming from back-office mandates in line with our strategic aim. We recorded one new State Street Alpha mandate, demonstrating continued momentum in this unique value proposition.
While the current environment presents some uncertainty, our existing pipeline in investment services is robust, and I am confident in our platform and the improvements we have made to our sales effectiveness. As a result, we are maintaining our goal of $350 million to $400 million in new servicing fee revenue wins this year while also being mindful of the potential for variability in the current environment.
We continue to make significant strategic progress and growth in our investment management franchise, resulting from our focus on broadening Global Advisors product and distribution capabilities. This has better equipped GA to capitalize on growth opportunities.
Management fees increased by 10% year over year. You once saw net outflows driven by an anticipated single client event within the institutional business. At the same time, the quarter was marked by a number of significant accomplishments.
For example, the importance of our strategic focus on low-cost ETFs is underscored by the fact that 50% of all ETF industry flows were directed towards the segment in Q1. Our SPDR US low-cost ETF suite continued to expand its market share in this fast-growing segment, capturing new flows in Q1 at a rate more than twice our industry AUM market share, with our low-cost ETF AUM reaching a record $256 billion at quarter end.
Importantly, we expanded share in the US low-cost fixed income segment. Further, we saw strong ETF flows in EMEA, while the commodities ETF segment gained market share, benefiting from market volatility in our industry-leading gold ETFs, which exceeded $100 billion of AUM for the first time.
GA has a history of employing strategic partnerships to open new avenues for future growth. In Q1, we completed several important strategic growth initiatives, including the launch of the innovative ETFs leveraging our partnerships with both Apollo Global Management and Bridgewater Associates. We also announced the expansion of our partnership with the Saudi Arabia Public Investment Fund through the launch of the first Saudi Arabia fixed income UCITS ETF in Europe.
Finally, GA recently announced a strategic investment in partnership with Ethic, a leading technology provider that distinctively empowers wealth advisors to build tailored client portfolios at scale. This partnership will enable investment advisors to access our model portfolios and SPDR ETFs for Ethic's platform, reinforcing our commitment to expanding investor access to our investment capabilities and strengthening our intermediary franchise.
Turning to our markets franchise, as a leading provider of trading, research, and lending solutions coupled with innovative platforms, financing, and portfolio solutions, our markets franchise is well equipped to support clients through this volatile period with deep liquidity and trading expertise while also providing important diversification to our revenue profile. In Q1, FX trading services and securities finance revenues both grew strongly year over year, supported by notably higher FX client volumes and average assets on loans, which increased 14% and 19% respectively, positioning us well for future growth.
Our balance sheet position is robust, providing us with a strong foundation to weather the current market environment. Time and again, our resilient balance sheet has been a proven stabilizing force for our clients and markets during periods of stress, such as in 2020 and early '23.
In the first quarter, our strong capital position enabled us to return $320 million to shareholders for common share repurchases and dividends, while we also built upon our already strong liquidity position. Looking forward, we will continue to support our clients with our balance sheet while also returning significant capital to our shareholders as planned, subject to market conditions and other influencing factors.
Turning to expenses, we tightly manage costs in the first quarter. Year over year, expenses increased by just 3%, excluding notable items, contributing to the strong fee and total operating leverage we delivered in Q1. We have established a track record of consistent expense discipline in recent years.
As outlined in January, we have a comprehensive book of work underway focused on delivering significant new recurring productivity savings this year. As you would expect, we are well prepared as we look ahead with a detailed plan for a broad range of scenarios. We are laser-focused on controlling expenses tightly and calibrating them in line with the revenue environment while also continuing to make client and capabilities investments consistent with our focus on our long-term strategic priorities.
Finally, I would like to provide an update on our search for a permanent CFO. The process is advanced, and we expect to be in a position to make an announcement in the near term.
To conclude my prepared remarks, we had a strong start to the year in Q1. However, the operating environment has changed dramatically since the end of the first quarter. As a result, the economy, financial markets, and the world's investors are navigating through a period of uncertainty.
Despite the hurdles this environment may present, we have strong conviction in our strategy and in our ability to serve our clients well, underpinned by our distinctive value proposition and financial strength. We are focused on being agile in the current environment, and I firmly believe that we have this right strategy to deliver solid financial returns in both the near and long term for our shareholders.
With that, let me hand the call over to Mark, who will take you through the quarter in more detail.

Mark Keating

Thank you, Ron, and good morning, everyone. I'll begin my review of our first-quarter financial results on slide 3 of the presentation.
For the first quarter, we reported EPS of $2.04 with year-over-year EPS growth of 21%, excluding prior-period notable items. Looking at results for the quarter, we demonstrated solid execution across the franchise and a strong start to the year with broad-based fee revenue growth of 6% year over year. Our strong fee revenue performance combined with stable NII and well-controlled expense growth of 3%, excluding notable items, enabled us to generate over 300 basis points of fee operating leverage and over 180 basis points of total operating leverage this quarter.
While we've seen uncertainty weigh on global equity markets in recent weeks, our first-quarter results demonstrate the strength of our business with a nearly 2 percentage point expansion of our pre-tax margin year over year, excluding notable items and an ROTC of over 16% for the quarter.
Turning now to slide 4, period-end AUC/A and AUM increased 6% and 9% year over year, respectively. The increases in both metrics reflect higher market levels as well as positive flows.
Moving on to some of the key market indicators that impact our business. Though we saw rising economic uncertainty in the latter part of the quarter, daily average global equity market levels were roughly flat, while daily average FX volatility declined slightly relative to the prior quarter.
Turning to slide 5, servicing fees increased 4% year over year, driven by higher average market levels, net new business, and improved client activity, partially offset by normal pricing headwinds. The previously disclosed client transition was a headwind of just under 1 percentage point to year-over-year growth in 1Q.
Consistent execution against our growth objectives has been a key focus area for us, and we were pleased with the solid business momentum across investment services in the first quarter. As Ron mentioned earlier, we reported one Alpha mandate win with nearly half of the AUC/A wins driven by Alpha.
New servicing fee wins were $55 million in 1Q and nearly $370 million over the past four quarters. Importantly, the vast majority of these first-quarter wins were in the back office, consistent with our goal of prioritizing our sales mix towards faster time to revenue products. I would also add that the pace of quarterly installations went as planned in 1Q.
Looking ahead to the second quarter, we are cognizant of the potential for variability that has been introduced into the operating environment. That said, our pipeline is healthy, and we expect to see very good sales momentum in 2Q as we continue to actively pursue opportunities in key regions as well as in strategically important growth areas such as private markets. And as Ron noted, we continue to target $350 million to $400 million in new servicing fee revenue wins this year.
Moving to slide 6. Management fees increased 10% year over year, largely reflecting higher average market levels and the benefit of prior-period net inflows. For the quarter net inflows -- net outflows totaled 13 billion and were primarily driven by an anticipated client transition within our institutional business. ETF inflows were muted in 1Q as market uncertainty led to outflows in our institutional-oriented SPY product. That said, Global Advisors continued to demonstrate solid underlying momentum within its ETF business.
In 1Q, we launched two ETFs leveraging our strategic partnerships with Apollo Global Management and Bridgewater Associates, and we generated strong inflows and market share gains in key product segments such as our US low-cost offering. In addition, our global ETFs surpassed $100 billion of AUM in the quarter as investors contended with rising global uncertainty. Taken together, we were pleased with the strong performance of our investment management business in the quarter, which generated a pre-tax margin of approximately 28%, including seasonal compensation expense.
Turning now to slide 7. FX trading revenue increased 9% year over year as the evolving geopolitical climate drove FX volatility higher, resulting in increased client volumes across most of our trading platforms. Securities finance revenues increased 19% year over year as continued client engagement resulted in higher balances and solid revenue performance in prime services.
Moving on to slide 8. Software and processing fees increased 9% year over year in the first quarter, primarily driven by higher front office software and data revenue associated with Charles River. During the quarter, front-office software continued to demonstrate solid growth, increasing 10% year over year to $158 million, with our software-enabled and professional services revenues up 7%. The front-office software market continues to represent an important growth area for State Street, strengthening client relationships and providing us with a valuable source of consistent e-revenue. In the first quarter, annual recurring revenue grew by approximately 15% year over year to $373 million driven by over 25 SaaS client conversions and implementations.
Moving to slide 9, NII was relatively flat compared to the year-ago period at $714 million as higher investment security yields and continued robust loan growth were offset by lower short-end rates and changes in deposit mix. On the sequential basis, NII decreased 5%, primarily reflecting changes in deposit mix, lower short end rates, and lower day count with too fewer days in the quarter.
These factors along with higher deposit balances to support business growth and to further enhance our already strong liquidity levels resulted in some net interest margin compression in 1Q. As detailed on the right of the slide, average total deposits were up 11% year over year and 3% sequentially, marking the sixth consecutive quarter of growth imbalances. As expected, non-interest bearing deposits moderated from the seasonally high levels observed in 4Q.
As we look ahead, we remain dedicated to supporting our clients during times of macroeconomic uncertainty, and our strong, highly liquid balance sheet provides us with a solid foundation to meet their needs.
Turning to slide 10, we remain acutely focused on continuing to manage our expense base with year-over-year expense growth limited to 3% in the first quarter, excluding notable items. At the same time, we continue to make targeted investments in technology and infrastructure, bolstering resiliency and product capabilities to ensure that we can meet the evolving needs of our clients.
Continually driving productivity and other savings is what enables us to fund these investments. For the quarter, we generated savings of roughly $90 million and we continue to target $500 million of savings this year.
Our ability to effectively manage our expense base has developed over a number of years and is ingrained in our culture. As a result, over time, we have been able to drive meaningful and consistent productivity savings while self-funding investments in our business.
In an uncertain operating environment such as the one today, we are intensely focused on calibrating our expense base to a range of scenarios. Importantly, as we look ahead, we have a number of different levers to achieve that goal.
Moving to slide 11, our capital and liquidity levels remain strong and well in excess of regulatory minimums. As of quarter end, our standardized CET1 ratio of 11% was up approximately 10 basis points quarter over quarter.
RWAs increased roughly $4 billion sequentially in part driven by higher period-end securities finance RWA along with increased loan balances. Our bank LCR was a robust 139%, up from 134% in 4Q as we prudently managed our liquidity levels in a dynamic market environment.
In the quarter, we were pleased to return $320 million to shareholders consisting of $100 million of common share repurchases and $220 million in declared common stock dividends. We've previously commented that we expect a progressive cadence of capital return this year.
And as we look to the second quarter, we anticipate a step up in repurchase activity. For 2025, we continue to expect to return around 80% of earnings to shareholders, subject to market conditions.
So in summary, our first-quarter performance demonstrates the continued strength of our franchise as we executed against our strategic priorities, supported our clients, and delivered significant positive fee and total operating leverage and pre-tax margin expansion on a year-over-year basis.
With that, let me touch on our full-year outlook, which I will remind you is on an ex-notables basis. In January, we provided guidance for 2025 that was supported by various assumptions and scenarios. As we stand here today, our outlook is unchanged albeit with the understanding that the operating environment has evolved and also presents a higher degree of uncertainty. Assuming markets remain generally supported from recent levels, we continue to expect to deliver full-year fee revenue growth of 3% to 5%.
Turning to NII, we continue to expect NII to be roughly flat for the full year, with a range of up low single digits to down by a similar amount in percentage terms consistent with our prior guide and subject to global monetary policy as well as deposit mix and levels. And we continue to expect expenses to be up approximately 2% to 3%.
However, as noted earlier, we have developed plans for a range of scenarios given the uncertain environment, and we are prepared to aggressively manage expenses as required. As such, we continue to expect to deliver both positive fee and total operating leverage, the latter of which continues to assume that NII does not become a material year-over-year headwind.
And with that, operator, you can now open the call for questions.

Question and Answer Session

Operator

At this time we will open the floor for questions. (Operator Instructions)
Ken Usdin, Autonomous.

Ken Usdin

Great. Thanks. Good morning. I did want to ask just on the capital return front, I know you mentioned the 2Q step-up on the 80% payout still holds. But does anything in the environment with regarding uncertainty and deposit flows, just potentially also change your view around how you might think about returning capital. I know the slow start is kind of how you started last year as well, but just in terms of thinking like -- how would you think about any adjustments to that expected pacing that you reiterated? Thanks.

Mark Keating

Yeah. Hi, Ken, it's Mark. I can take that. I think right now, we would say that we're on track with our plan that we communicated back in January, which was to return capital at a progressive rate throughout the year. So consistent with that, during the first quarter, as I mentioned, we started with the $100 million of capital buyback -- share buybacks. So we anticipate a nice step-up in Q2, as I mentioned.
And right now, we're expecting to continue with our plan, which overall, again, as I mentioned, is to return about 80% of earnings back to shareholders. So right now, I would say we're on track with that.

Ronald O'Hanley

Yeah, Ken. It's Ron. Maybe let me just add to what Mark said. As he noted and I noted, we've developed a range of scenarios as we think about the current environment. So what you're hearing from us reflects that range of outcomes, which is probably wider -- the potential range is wider than it would be in a normal year. But given all that, we still feel confident in what we're saying about capital return.

Ken Usdin

Okay. Got it. And second question, just on the big picture environment around new contracts and just how people are reacting to the environment, especially on the servicing side, you've done a great job putting on more new wins. But any changes to just how you sense the world is feeling in terms of signing up new business? And does anything then change also in terms of your ability to onboard like you were talking about in January? Thank you.

Ronald O'Hanley

So Ken, it's Ron. I would say that certainly, our clients are very aware of the operating environment, but we're not seeing any meaningful change in behavior in terms of timing, in terms of doing the work that they need to do for this onboarding or for that matter, even pacing. So obviously, that could change if we see some kind of significant deterioration in the market, but we're not seeing that yet, which, again, goes back to why we've affirmed what we said earlier in the year about what we expect in terms of new business wins.

Operator

Jim Mitchell, Seaport Global.

Jim Mitchell

Hey. Good morning. Maybe just, Mark, you talked -- and Ron, you've talked about recalibrating expenses quite a bit in a lot of different scenarios. So how much flex do you have in the expense line if revenues are worse? Just be helpful to think about the range of outcomes there?

Ronald O'Hanley

What I would say, Jim, is that, remember, we've been on this journey for a while. And each year, we build upon what we've done in the prior year and sometimes it's multi-year kinds of transformation efforts that we have underway. So we have, I would say, some flexibility in terms of pulling forward some kind of actions, reprioritizing investments, putting in more towards productivity-based technology investments. So there's some flexibility there.
Secondly, we've got a fairly significant investment book here, and we want to be very careful that we're not doing anything to harm or impair what we're doing in the long term -- but we see some flexibility -- and still be able to deliver what we need to do strategically for the long term. So the answer is just given the pace that we've been on and the multi-year nature of some of the transformation efforts that we have underway, we feel we have some flexibility here.

Jim Mitchell

Okay. Great. That's helpful. And just maybe trying to think around the current environment in April, it's been very volatile. I think you guys talked a little bit about being there for your clients. Are you seeing elevated deposit flows and sort of -- there's some good volatility for you guys in FX, asset lending, and deposits. So how are you seeing that play out so far in April?

Mark Keating

Yeah. Hi, it's Mark. Yeah, I think as you'd expect -- and we've been through a series over time of uncertainty cycles. And we usually see -- and we're seeing what we usually see, which is we've seen our deposit levels tick up. We've seen more volatility and our trading organization is able to capture that volatility.
Now again, it's early, first couple of weeks of April, but we are seeing elevated deposit levels and additional trading coming from the volatility.

Operator

Alex Blostein, Goldman Sachs.

Alex Blostein

Thank you. Good morning, guys. I was hoping to just dig in a little more into the current environment and specifically, when you look at the deposit trends, I was hoping you can bifurcate between interest-bearing and non-interest deposit trends.
Obviously, the interest-bearing side probably doesn't produce a whole lot of NII still, but the non-interest-bearing piece could be quite meaningful. If we look at where you are today, non-interest-bearing deposits, I think pretty low -- still near kind of record lows as a percentage of total. So where does that stand today? And maybe remind us which client segments are the larger drivers of non-interest-bearing deposits so that we can kind of maybe evaluate how the environment shakes out and what that could mean for those balances.

Mark Keating

Yeah. It's Mark. I can take that as well. Yeah, I guess I'd start by saying it's generally non-interest-bearing deposits. So generally, we see it through some of our asset manager clients but also in the asset owner space. So there's some variability between segments.
I'd say just to get to the non-interest-bearing levels right now, we did see NIB deposits declined roughly $1 billion, that's about 5% in Q1. Now again, that was expected as we talked about in January. It was about -- we had a seasonally high fourth quarter. So right now, we're still expecting that there is some room long term for that balance to continue to decline as we talked about in January.
Right now, we are seeing -- the deposit levels are tending to be a bit elevated. And we had talked about overall client deposits in the $230 billion to $240 billion range when we gave our original guide. I think the high end of that range right now is probably a better estimate. So we still expect there to be some decrease in non-interest-bearing, but right now, we're seeing it hold up pretty well. Again, it's early in the quarter, and we'll see how things play out from here.

Alex Blostein

I got you. And then one for maybe both of you guys, but definitely encouraging to see the fee guide staying intact despite what obviously has been a much tougher environment. Just mechanically flowing through the mark-to-market dynamics would put some pressure, I guess, on the outlook. So just curious what's holding up better in the business to fill the gap, I guess, from the market impact on fees in 2025 to keep your guidance largely intact?

Ronald O'Hanley

Alex, well, it's a couple of things. First of all, as you know, we sell in one period and install in another. And so just the sheer volume of business to be installed and the fact that, as Mark noted, we said we were going to accelerate that a bit, and we have. So that's one. And we see a clear path to meaningful installations throughout the year.
Secondly, we talked about a $350 million to $400 million new business goal. And we see that. We see the pipeline developing, and it's a combination of -- we've invested very heavily in our various platforms. And so that investment is paying off. Plus, as you know, back a couple of years ago, we started focusing on overall relationship management and salesforce effectiveness and those investments are paying off.
So it's not that we're immune to the market, but that given those kinds of things, we feel pretty confident in our ability to deliver within that range of the fee guide. Now market levels will ultimately be a significant driver here, which is why we talk about scenarios. But even as we look at those scenarios, we've developed what are reasonably plausible scenarios, we feel pretty confident.

Mark Keating

And maybe I could just add -- I'm sorry, go ahead.

Alex Blostein

No, please.

Mark Keating

I guess a lot has changed in terms of how we're looking at the macroenvironment. But I think what Ron is getting at is what has not changed is the core business momentum that we brought from 2024 into 2025. And I would -- I mentioned the $370 million of servicing fee sales over the last four quarters. And also, I would note that the $356 million of to-be-installed revenue is the highest number that we have reported since we've started that disclosure. So there's a lot of revenue to be coming on to the P&L.
And then obviously, you can see the growth that we've had in our management fees, software. So there's a lot of good core momentum that hasn't changed, even though markets have been -- and the overall macro environment has been quite uncertain.

Alex Blostein

Great. Perfect. And then just a clarification for me just on this front, you guys are assuming market levels are flat from kind of current levels for the rest of the year underwriting this guide?

Ronald O'Hanley

If we knew that, we wouldn't be on this call with you.

Alex Blostein

Nobody knows. I get it.

Ronald O'Hanley

There's a -- our scenarios obviously include a range of market level, Alex, as you'd expect. I guess what we're trying to say is that given where we are, given the momentum we have, and given the fact that we have a quarter and now half of a month under our belts in the second quarter, the guide that we've given, we feel pretty good about.

Operator

Mike Mayo, Wells Fargo Securities. (Operator Instructions)
Alright, we'll go to the next one, and we will try Mike again.
Glenn Schorr, Evercore.

Glenn Schorr

Thanks very much. So just tacking on to your good sales momentum and revenue momentum comments on keeping the growth, which is great. I'm curious; you made that shift towards back office as the faster time to implement on revenue.
You also just commented about managing and focusing on the overall relationship. So I'm curious, does the $350 billion to $400 billion, does that leave you in a position to take share? We can't see the net; we only see the gross.
And then most importantly, what do you do once you get the back office in the door to expand the relationship? What are some of those likely areas? And what kind of successes have you had with that given your focus. Thanks.

Ronald O'Hanley

Yeah. Glenn, just to clarify. So what we've been saying now for this year and certainly most, if not all, of last year is as we develop our pipeline, but also as we work with clients, even in an Alpha kind of situation, where we've got -- it could be front, middle, and back; it could be middle and back. It could be data and everything. What we work very hard to do is front-load the back-office installation.
It requires less engineering. It's pretty easy to move it over. And that continues to be the approach that we take. As much as possible, we try and front-load that.
If we get back-office only, typically through the sales process, that would include, if it's a global portfolio, it would include some kind of FX relationship, but typically -- not always -- but typically would include a securities finance relationship. And it also typically would include some of the services like fund accounting, performance measurement and all that. So that's kind of a routine part of the process.
And just going back to big picture -- and Mark will correct me if I get this wrong -- but we've been trending that about half of our new business has been associated with Alpha. And we foresee that trend continuing. So in terms of your question about back-office share, it's awfully hard to calculate that, but we believe that we continue to gain share.

Glenn Schorr

Okay. I appreciate all that. One quick follow-up on the deposits that are coming in the door -- and we're at the high end -- given this uncertainty, should we assume your reinvestment stays super short, like what are you thinking about on the reinvestment side, Mark?

Mark Keating

Yeah. I think that's a good assumption that we'll be staying short in the environment that we're in.

Glenn Schorr

So that impacts the NIM for the time being?

Mark Keating

Possible. Yeah. It's possible you'll see the NIM float down a little bit in the current environment.

Operator

Mike Mayo.

Mike Mayo

Hi. In terms of -- first, the CFO search, I guess, you can stay the course right now if you want to. When will we know who the next CFO is?

Ronald O'Hanley

As I mentioned, Mike, it's advancing well, and we anticipate to be able to come to you in the near term.

Mike Mayo

Okay. And then just more generally, I know this is the big picture question and you reaffirmed your fee guide. And you mentioned April deposits and some of the trading is still going well. So I guess that's all good, but there's a scenario here that's reflected in the stock market and Chairman Powell's speech yesterday that it might not end so well.
And you're in so many countries moving so much money, how do you put your arms around -- I wouldn't even call it a tail risk, it'd be kind of almost a base case, the stock market as a whole. How can State Street survive in the environment where there's a global trade war? Thank you.

Ronald O'Hanley

Mike, there's certainly heightened uncertainty as I mentioned at the beginning of my remarks, not just about trade, but about other things like deficits, taxes, geopolitics, et cetera, deregulation. So we are very vigilant at this point. And that's why, one, we're doing what we're doing in terms of developing this range of scenarios and then building and have built out plans to accommodate the range.
And as you'd expect, that would include a fair amount and accelerated expense management, which we think that we're capable of doing. We also have the investment book that we -- and I'm talking now about the investment in the business. We want to be careful on that, but that always is a lever.
And then thirdly, we have a track record of continuing to manage down unit costs and BAU expenses. We've been doing that now every year. And we believe we've gotten good enough at it that we've got a pretty big, ambitious set of work for 2025. But if we need to, we're looking at ways where we can accelerate and pull forward some things that we had planned to do in the 2026 timeframe.
So it's in kind of a catastrophic market situation. Could we offset all of that? Of course, not. But do we feel that we're very well positioned to manage through a broad range of scenarios? Yes, we are.

Mike Mayo

One short follow-up. Just remember a couple of decades ago, I thought it was like 80% of your expenses were fixed costs, right? I think that's changed -- been reduced over the years. Do you have a sense for how much of your expenses are variable over the one- to two-year period?
I know in the long term, all expenses are variable, right? But in the next one to two years, is it like -- I don't know -- what's the percentage?

Mark Keating

Mike, hi, it's Mark. It's a good question. I wouldn't want to necessarily put a pin on it, a number on it. If you think about how our organization is structured with people, headcount, occupancy, I think your number is somewhere around two-thirds, something like that. But I wouldn't want to put a specific number on it.
I guess what I would say is we've gotten better at being able, as Ron said, to flex our expense base with the transformation we've been doing, driving productivity, automation. So we've been driving more flexibility in our cost base so that we can flex it with different revenue scenarios.

Ronald O'Hanley

And Mike, there's also technology here in the pace at which we're continuing to introduce new technology here. We've talked a lot about global delivery simplification, which has delivered a lot over the past couple of years, but they're just getting started in terms of some of the operating model changes and introduction of even more advanced technologies.
So it's a substitution of technology for labor in some cases. But again, it's not like we're approaching this problem as a clean sheet of paper for the first time. I mean we're well underway. And we do see opportunities to accelerate that.
Now again, you want to be careful because you want to do this recognizing that you -- the most important thing for us to do is deliver service quality. And our service quality is high. We have sales results like we're seeing now. So we don't want to put that at risk. And this is why we time these kinds of reengineering changes out, but there is some flex in that.

Operator

Betsy Graseck, Morgan Stanley.

Betsy Graseck

Hi, good morning. Hi. I did just want to understand a little bit about the NII outlook and what the scenario is that it's based on. I know you mentioned flat year on year, plus or minus low single digits, either side. I'm assuming you're using the forward curve in the various countries, but if there's any difference to that, let me know.
And then I also wanted to understand what is a -- what is the scenario that would drive plus low single digits year on year? And what are the scenarios that drive below, less than (technical difficulty)

Mark Keating

Hey, Betsy. It's Mark. I can take that. So thanks for the question. First, I would -- thinking of our NII guide, I just maybe as a background, remind folks that we're coming off two consecutive years of record NII growth, including last year 2024, we grew NII by 6% year over year.
So it's a pretty high stepping off point, and our outlook is to be basically flat to a record year plus or minus low single digits. So that's kind of the frame.
Maybe I'll go back to how I framed it in January and give you a sense of the roughly four buckets around how we think about our NII guide. And there are two potential tailwinds around loan growth and investment portfolio rollovers. And then there's two potential headwinds, the rate environment, and deposit mix. And I use potential because some of those can become tailwinds as well depending on macroeconomic kind of development.
So first, on deposit levels, so let's take the headwinds. And I mentioned this a little bit around non-interest-bearing, but deposits were seasonally high coming out of Q4. They did moderate as expected in January. So we did see that kind of usual seasonality to it, but they did bounce again late in the quarter, and you're seeing that.
I mentioned that 240 is probably a better range for you to think about our client deposits. It's still early, but I mentioned that we've seen pretty strong deposit levels so far. While we did see non-interest-bearing decline in the quarter at a current rate environment, $1 billion of non-interest-bearing is worth about $10 million a quarter to us. So if the non-interest-bearing decline flattens out, or we see a favorable deposit mix that would certainly be supportive of NII.
On the rate side, you're correct; we're using market forwards, and those are certainly moving around and including, I'm sure, from the news yesterday. So we're basing -- us right now, we're basing it on our market forwards. And if inflation accelerates and central banks start to pause, that would be incrementally positive for NII, particularly as I've talked about in non-US. We're pretty neutral around US rate changes.
And maybe I'll just reiterate again that for both ECB and Bank of England, that's worth roughly $5 million to $10 million per cut per quarter in non-US business. And then finally, if long rates hold up and we've seen those move around, if those stay elevated, that would also be supportive of NII and vice versa.
And then when we talk about loan growth tailwinds, so we remain focused on delivering solid loan growth, as we've talked about. That's embedded in our outlook. And then investment portfolio rollovers would be the final bucket in terms of how we think about our guide.
And we've talked about roughly $4 billion a quarter. It can be lumpy, but roughly $4 billion a quarter. And given we've done a couple of portfolio repositionings and the pickup there is roughly 100 to 150 basis points.
So hopefully, that gives you a sense of the various component parts where we can see potential to get up on the plus side and also things that could move us a little bit to why we're saying plus or minus low single digits. So hopefully, that's helpful. And we still think our guide is reasonable and achievable for the year, and we'll see how things develop.

Betsy Graseck

Okay. Higher for longer is the positive.

Mark Keating

Yeah. Good summary.

Operator

David Smith, Truist.

David Smith

Hi. So you mentioned that about half of your new business over the past year, I think, came from Alpha. Is it as simple as just taking the servicing fee win number, dividing it by 2 and dividing it by the 7 mandate wins for Alpha you had to get a sense of the relative impact of like an Alpha client versus another client? Or is there anything else that we should be thinking about in terms of the revenue rate of wins attached to Alpha versus other assets?

Mark Keating

Yeah. Thanks, David. I don't think it's that straightforward. I mean if we think about Alpha wins in terms of basis points, in terms of asset sizes, in terms of complexity, I don't think you can just take the number of mandates and divide it and use that based off the -- because again, we're talking about a backlog or we're talking about overall sales -- servicing sales number, which can be annualized as well. So I don't think it's as simple as the math you're talking about, but maybe you could unpack it a little bit more for me.

David Smith

Just trying to get a sense of like if your Alpha penetration accelerates, what that could mean for the revenue rate in asset servicing?

Mark Keating

Yeah. I think that overall, again, it's adding more mandates definitely helps. But what I guess, what Ron was getting at earlier, is what's really important to us is that we've got a broad-based sales. And that's what really has turned the corner on achieving the $350 million to $400 million.
So it's not just Alpha mandates that we're leading with. It's about core fund accounting, custody, back office.

Ronald O'Hanley

And David, what I would add is to Mark's points are that, as we've said before, Alpha is accelerating our sales. That is actually what's happened. And as we continue to build out the platform -- and we've now got Alpha for privates, we also have the Alpha Data platform, which is a data element that's additive to the original Alpha platform that we launched back 2018, 2019.
So there's no question that this is accelerating sales I think what Mark is pointing out, though, that -- this is why we give you both our new business wins and our new business revenue, right? Because there's not a simple formula that every alpha comes in like this.
I mean, some of it depends on, for example, was CRD already there -- was Charles River already there or not there? Is it a move from on-prem to SaaS? So it doesn't lend itself to a simple rule of thumb like that, but your overall point was is it accelerating sales and enabling us to accelerate sales? Absolutely

Operator

Vivek Juneja, JP Morgan.

Vivek Juneja

Thanks. Ron, a question for you, maybe, or Mark. When I look at your servicing fee revenues, what's the mix in terms of US versus non-US? And if you look at your servicing new business wins over the past year -- not concerned about quarter-to-quarter -- what percentage came from non-US versus US? And a similar kind of a breakdown for asset management.

Mark Keating

It's Mark. Hi, Vivek. I can start. The first piece of framing I'd give you is for our existing business. Roughly, 45% or so of our servicing business is non-US. In terms of -- and again, that's spread across Europe, APAC, Canada, Latin America. So 45% would be non-US.
And again, we're very deep in these markets, right? We have in 32 countries. We are not just plate on -- a nameplate on a building, but we have significant operations, client service. We're very much entrenched in those markets. So it's about 45% of the existing business.
In terms of the split between regions and sales, I don't have those numbers in front of me in terms of historically, I would say that -- and if you look back at the different announcements that we've made, it's pretty broad-based. We've recently announced some deals in Europe and APAC. So I would say, in general, it's been a very broad-based type of progress that we're making on the sales target of $350 million to $400 million.

Ronald O'Hanley

In fact, what I would add is, over time, the percentage outside the US has been slightly higher, I believe, over time. But again, lumpy.

Mark Keating

Yeah. I agree with that.

Vivek Juneja

Right. That would have been my guess. And is it similar in SSGA?

Mark Keating

In GA, it's roughly two-thirds US and about a third non-US. So it's a little more balanced right now in our servicing.

Vivek Juneja

And I guess given what's going on in the geopolitics right now, do you see there could be some shift in this now? If there's a desire to go more local for some of your clients? Do you see that it may be too early because it's all just happened and yours are very long contracts with very long timelines? But do you see that starting to potentially shifting? And what does that mean then for you?

Ronald O'Hanley

Yeah, Vivek, it's something that we worry about. In the past, when the world has been upset with the US, that that actually hasn't played out. But there is the potential that it could this time, which is why Mark's point about our geographic footprint is actually very important. Because in most of these markets, we, in effect, are local. And in many of the markets, we're not only local, but we're the number one or number two player in the market.
So the fact that we have people in place, they are local. We're very much part of the local ecosystem, we think helps us, but it's something we're very focused on. And it's driving a lot of how I'm spending my time and how my executive committee colleagues are spending their time.
I mean we already spend a lot of time on the road with our clients, and we're spending even more. So it's something that weighs on us, but we think relative to others, we're quite well positioned in terms of our footprint and our deployment of people.

Operator

Gerard Cassidy, RBC.

Gerard Cassidy

Thank you. Good morning, guys. Can you guys -- you talked on the call about growing your obviously, net interest income, and you talked about the robust loan growth. Can you share with us some color about that loan growth?
I know in the fourth quarter, the regulators asked everybody, the top banks, to disclose in the best efforts way, the loans to non-depository financial institutions, and you guys certainly did that along with your peers. And you showed that you -- most of your loans are in the business credit intermediary category. So can you give us some color where the growth is coming from, and what type of risk might be associated with it?

Mark Keating

Yeah. Sure. I can start, Gerard. It's Mark. So yeah, I guess, overall -- in terms of overall loan growth, and I can talk a little bit about the non-depository financial institution question. So yeah, overall, we've been very pleased with the growth overall of the loan business. You continue to see opportunities across cap-call, subscription lines, BDC lending, middle-market CLO.
So in terms of growth, while Q1 was slightly below kind of our recent run rate, we see a lot of opportunities to continue to grow that over the course of 2025 a lot with our private markets clients as we've mentioned.
And I think you've asked about the NDFIs. So a large part of our client base around private market is an area that we see tremendous growth opportunities. Lending in that area is very connected to our servicing business. So again, we see that as a real opportunity to continue to drive.
I mean as a sidebar, our private markets business was up about 15% this quarter, year over year. So that growth that we see in the servicing side, it's really a good driver as well for how we continue to expand our loan business.

Ronald O'Hanley

Yeah. What I would just quickly, I think Mark's points reflect the fact that, as you know, our -- we are not a big lender, period. And when we do deploy our balance sheet, we try and deploy it in a way that supports our fee-based business.

Gerard Cassidy

Very good. And I assume most of this loan growth is direct and is not -- participations with other firms. Is that fair?

Mark Keating

That's correct.

Gerard Cassidy

Okay. And then, Ron, just a bigger picture question for you. Obviously, there's a lot of potential change coming on the regulatory front with different capital ratios, possibly the Basel III Endgame changes with new nominee for the Vice Chair of Safety and Soundness at the Fed, is even talked now of excluding government securities possibly from the supplementary leverage ratios.
When you guys look at it and if these changes take place, can you share with us how it would impact you folks, and number two, how it might impact your actual business in terms of more liquidity in, let's say, the treasuries market, if that's what happens with the exclusion of the US treasuries and SLR?

Ronald O'Hanley

Yeah. So Gerard, your -- the premise of your question, we would agree with, which we think this is an environment where there's actually going to be real work and thought applied to the regulatory environment, and how we think about it. Particularly, we're 17 years on from the global financial crisis, and how does this get calibrated properly.
And I think that you'll see progress in the areas of capital. The administration has already talked about it that this was started, by the way, under the prior administration, but I think that it's gotten a lot more focused. You've heard Treasury Secretary Bessent talk about this a lot, and it seems that he's going to play a central, almost coordinating, role here across the bank regulators. So we would expect to see some movement on capital. Like you note, there's, I think, a sense that some of the liquidity rules need to be rethought.
Now for us, we think that's good for the system. You'll recall, there was a legislative amendments made back several years ago, on the supplementary leverage ratio that basically help the trust banks in terms of providing some of that relief. So the incremental relief that the trust banks would get under a change to SLR is limited, but it would be very good for the marketplace, particularly as you noted around the treasury market. And we also would urge, and we think Tier 1 leverage will actually get some attention on this, too, which will help all that.
The second area, though, is really around -- and this will probably take longer, but really thinking about the interaction of the regulatory environment and the supervision environment, and I think there's going to be a look at that, and we'll see where that comes out. But I think it's a reasonable scenario to say that if there was a situation where capital was moderated slightly, liquidity was tuned, and (technical difficulty) and regulation became a situation where not more was being added. That would, I think, turn quite favorable and be quite favorable for the industry overall.

Operator

There are no further questions. I want to turn the call over to management for closing remarks.

Ronald O'Hanley

Well, thank you all for joining us.