State Street Corp. looked to optimize savings and operational productivity through technology and automation in the second quarter.

The $295 billion bank is “carefully investing in strategic elements of the company, including Alpha [its portfolio management technology arm], private markets, technology and operations, automation,” Eric Aboaf, chief financial officer at State Street, said during the bank’s earnings call Friday.

The bank’s information and communications spend increased 3% to $405 million due to technology and infrastructure investments, according to the earning supplement.  

WHY IT MATTERS: The bank spends more than $2 billion a year on technology, Aboaf said at the Morgan Stanley’s US Financials, Payments and CRE Conference in June. 

“We’ve been working on a wide range of technology simplification, automation processes, I’d say, for the last three or four years,” Aboaf said at the conference. For example, in 2022, the bank focused on reducing back-end operational technology expenses to free up funds for investment, Aboaf previously said.  

BY THE NUMBERS: In Q2, State Street reported; 

• Revenue up by 5% year over year to $3.1 billion; 
• Net income increased 2% YoY to $763 million; and  
• Net interest income grew 18% YoY to $691 million.

NOTEWORTHY: In Q2, the bank increased its headcount 6% YoY to 42,688 to support business growth and technology investments, according to the company’s earnings presentation.  

Compensation for employee benefits increased 7%, driven by salary increases and higher headcount “attributable primarily to operational staff for growth areas,” including technology staff and insourcing, Aboaf said during the earnings call. 

After those hires, the bank is implementing a hiring freeze to contain staffing costs, Aboaf said, noting that the bank plans to transfer existing employees to new business areas or to growth areas to improve efficiency. 

WHAT THEY ARE SAYING: According to Zacks Equity Research Reports, State Street beat Q2 earnings expectations by delivering $2.17 earnings per share, compared with an expected $2.08.  

“Higher rates, business servicing wins, global footprints and efforts to technologically upgrade operations are expected to keep aiding revenues,” Zacks analysts said in the report. 

STATE OF PLAY: On Friday, Wells Fargo reported a 19% YoY increase in tech spend to $947 million, while Citibank has increased its tech spend by 12% YoY to $2.3 billion, to double down on automation and drive operational costs down. 

FLASHBACK: In 2022, State Street said that leveraging AI and machine learning can eliminate up to 80% of manual work required to verify net asset value accuracy, while adding that more than 50 tasks could be made more efficient using AI, the bank said in its presentation at the Morgan Stanley conference last year. 

Additionally, the bank is exploring distributed ledger technology and blockchain to drive efficiency and automation, Nicole Olson, head of digital product development and innovation, told Bank Automation News last year.  

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