Morningstar DBRS Confirms State Street Corporation at AA; Trend Stable

DBRS, Inc. (DBRS Morningstar) confirmed the credit ratings of State Street Corporation (State Street or the Company), including the Company's Long-Term Issuer Rating of AA. At the same time, Morningstar DBRS confirmed the credit ratings of its primary banking subsidiary, State Street Bank and Trust Company (the Bank). The trend for all credit ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA (high), while its Support Assessment remains SA1, reflecting the internal support provided by the Company. The Company's Support Assessment is SA3, meaning that timely systemic support is not expected. The Company's Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of State Street's credit ratings and Stable trend reflects the Company's powerful global franchise, with dominant or top tier positions across its highly sustainable businesses. Morningstar DBRS also view State Street's businesses as highly defensible, considering their significant barriers to entry and criticality to the functioning of the financial markets regardless of business cycle stage. Also considered is the Company's ability to generate a considerable amount of stable and recurring fee-based revenues, which supports its sound earnings generation ability and consistently favorable results. The credit ratings are also underpinned by the Company's relatively low risk balance sheet and very strong funding, liquidity, and capitalization. State Street typically performs well in times of stress, benefiting from a flight to quality for deposits, which helps further augment an already very liquid balance sheet. Consistent with all trust banks, the credit ratings also consider the operational, technological, and reputational risks given the complexity of operating globally across numerous regulatory jurisdictions.

State Street's IA of AA (high) has been assigned at the high end of the IA range to reflect the Company's dominant market position as the second largest custodial bank globally, as well as its highly sustainable fee-based business model, which results in revenue streams that are relatively more stable and predictable.

CREDIT RATING DRIVERS
The credit ratings would be upgraded if the Company continues to grow its franchise while maintaining strong financial results, solid balance sheet fundamentals, and a conservative risk profile. Conversely, sustained negative operating leverage, missteps in managing operational and/or reputational risk that negatively impact franchise strength would result in a credit ratings downgrade. The inability to consistently manage client retention and win new business would result in a credit rating downgrade.

CREDIT RATING RATIONALE

Franchise Combined Building Block Assessment: Very Strong/Strong
As the second largest custody bank and the fourth largest asset manager in the world, State Street has a dominant franchise across several highly defensible businesses that generate a considerable amount of stable and recurring fee-based revenues. Morningstar DBRS views these businesses as highly sustainable, considering their significant barriers to entry and that many of the related activities are critical to the functioning of the financial markets, regardless of the business cycle stage. The Company is also the world's largest ETF servicer, with total assets under custody and/or administration and assets under management of $51.7 trillion and $5.4 trillion at Q3 2025, respectively.

Earnings Combined Building Block Assessment: Strong/Good
State Street's earnings power is strong, supported by its globally diverse, fee-dominated business model that generates solid, recurring earnings. The Company reported a 13.4% return on average common equity in Q3 2025, up from 10.8% in Q2 2025 and 12.0% in Q3 2024. Total revenue of $3.5 billion in Q3 2025 was up 9% YOY, driven by higher fee revenue that was slightly offset by lower NII. Total operating expense of $2.4 billion was up 5% YOY, driven by an increase in investments to improve technology and business capabilities, revenue related costs, and the impact of currency translation. The Company expects to deliver both positive fee and total operating leverage in FY 2025.

Risk Combined Building Block Assessment: Very Strong/Strong
State Street's risk profile is very strong, considering that its balance sheet is generally less risky than most financial institutions. Credit risk also remains very low, as the Company's loan portfolio represented just 12.6% of total assets at Q3 2025. Nonetheless, Morningstar DBRS recognizes the significant operational and reputational risks the Company faces given its important role in the global financial markets and its significant dependence on technology and product innovation for its financial success. State Street is subject to legal and reputational risks or possible business loss from customers in relation to the Company's role as servicer, agent or financial intermediary.

Funding and Liquidity Combined Building Block Assessment: Very Strong
Morningstar DBRS considers State Street's funding profile to be very strong, as deposits generated by the asset servicing and corporate trust operations provide a substantial and stable source of funds. At Q3 2025, the Company had total EOP deposits of $280 billion, which was up 13% YOY. Moreover, in times of market stress, State Street's balance sheet attracts significant client funds given its strong financial profile, indicative of a "flight to quality". The Company manages its balance sheet conservatively, with most of its assets in central bank cash and high-quality liquid assets. State Street had $238 billion of cash and securities at Q3 2025, which represented nearly two-thirds of its total assets, with approximately 97% of its securities portfolio rated at least AA.

Capitalization Combined Building Block Assessment: Strong
Given its capital-light business model, State Street's typically returns a high proportion of its earnings to shareholders, and the Company continues to target a total payout ratio of approximately 80% for FY 2025. At Q3 2025, State Street reported a CET1 ratio of 11.3%, which was up 60 bps QOQ, reflecting the capital generated from earnings and a lower RWA. The Company also reported a Tier 1 leverage ratio of 5.6%, which was up 30bps QOQ. State Street has also consistently been a top performer in the Federal Reserve's stress testing exercise, a reflection of its lower risk balance sheet.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/468910.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

Notes:
All figures are in U.S. Dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (May 23, 2025) https://dbrs.morningstar.com/research/454637. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for this credit rating include Morningstar, Inc. and company documents. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are monitored.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.
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