If you spend time at any of DTCC’s 23 offices globally, you are sure to hear a lot of talk about transformation. Economic pressures, new technologies and the growing interconnectedness of financial firms are transforming market structure and sparking changes to the industry’s operating model and its view of risk management. Today, financial market infrastructures (FMIs) like DTCC are playing a more prominent role than ever before because we have a proven track record of centralizing, standardizing and automating back-office processes to mitigate risk, reduce costs and enhance operating efficiencies.
For DTCC, we see tremendous opportunities to leverage our 40-plus years of experience and harness the ingenuity and creativity of our people to fuel the development of innovative solutions that meet the evolving needs of the industry, deliver greater client value and grow our business.
As the Hall of Fame baseball player and dugout philosopher Yogi Berra once remarked, “If you don’t know where you are going, you might wind up someplace else.” Yogi may have struggled at times to get the words just right, but the message is undeniable – you need to set your destination before you begin the journey. In many ways, that was what we did throughout 2012 and 2013: we analyzed the global environment, made important decisions about our ownership, structure and business model and set a strategy to guide us as we grow our portfolio of integrated solutions. Unlike events in previous years, such as the financial crisis in 2008 or Superstorm Sandy in 2012, outside forces did not dictate our direction or compel us to deviate from our course in 2014. We controlled our destiny, and we capitalized on the momentum we have built to deliver outstanding results to our stakeholders.
Last year, our operating performance remained strong as we navigated through a rapidly changing and increasingly complex business and regulatory environment. We also remained steadfast in our commitment to look beyond short-term challenges in order to advance our top corporate priorities. While we are confident the initiatives we are pursuing will deliver significant value to our clients and the industry, we are ever mindful of the need to produce appropriate returns. To that end, we strengthened controls around the review of projects and intensified the rigor with which we analyze, scrutinize and approve business cases and new investment.
We are proud of our heritage as an industry-owned and governed market utility. This ownership structure allows us to serve the best interest of our clients.
We are proud of our heritage as an industry-owned and governed market utility. This ownership structure permits us to serve the best interests of our clients without being unduly distracted by short-term considerations, allowing us to take a long-term view. Because our clients are also our owners, our interests and objectives align with theirs. However, we are committed to bringing a commercial mindset to all of our activities to make certain resources are allocated wisely and operations remain lean and nimble.
By many financial measures, 2014 was a strong year, helping to deliver a solid performance for DTCC. Revenues of $1.494 billion represented an increase of 21% over the prior year, primarily due to the full-year impact of the Omgeo acquisition and the growth of the Global Trade Repository (GTR) business. Excluding acquisition and divestiture impacts, revenues increased by 8%. Our clearing agency subsidiaries, National Securities Clearing Corporation (NSCC), Fixed Income Clearing Corporation (FICC) and The Depository Trust Company (DTC) now account for 60% of total revenues compared to 80% in 2010, which is reflective of our efforts to continue to diversify revenue sources.
Expenses of $1.437 billion represented an increase of 28% due to the full-year impact of the Omgeo acquisition, coupled with investments we made to support GTR and start-up costs associated with our three newest joint ventures. Excluding the impact of acquisition, divestiture and start-up costs of these joint ventures, expenses increased 12%. In 2014, we delivered $42MM of annualized cost savings from Omgeo synergies and other efficiency programs.
Change is top of mind at DTCC, and this was best reflected in our 2014 initiative to review our legal entity and capital structure, governance practices and ownership framework. The year-long initiative – one of our most important strategic undertakings in decades – addressed two critical imperatives. The first was to allow us to meet heightened mandates, including higher capital requirements as a result of our three clearing agency subsidiaries being designated Systemically Important Financial Market Utilities (SIFMUs). The second was to provide us with the strategic capital we need to invest in and develop the type of large-scale shared services that are essential for the industry’s long-term growth.
Through an intensive outreach program that spanned more than six months of individual meetings and discussions with our stakeholders, we provided transparency into the rationale for, and expected benefits of, the proposed amendments to the DTCC Shareholders Agreement. We’re proud to report that in January 2015 our shareholders approved the changes we recommended and also agreed to fund a $400 million common equity capital raise – a critical first step that will enable us to execute the second part of our funding plan, which is to raise additional capital from the institutional markets to support the expansion of our products and services. In a sign of how much DTCC has transformed itself, this will be the first time in our four-decade history that we will be raising new equity capital.
Change is top of mind at DTCC, and this was best reflected in our 2014 initiative to review our legal entity and capital structure, governance practices and ownership framework.
Our acquisition of Omgeo in 2013 was a watershed moment and we quickly began to reap the benefits of the combined capabilities and strengths of both organizations. The integration is a true success story: we completed all organizational realignments faster than expected and exceeded synergy targets for 2014. We anticipate most of the remaining milestones to be completed in 2015, including employee transitions and physical location integration outside the U.S. while we continue integrating our technology platforms.
From a business perspective, we reaped immediate benefits from Omgeo’s sales capability and relationships with the buy side, which allowed us to penetrate new markets and client segments. Our energies in 2015 will focus on more fully leveraging the combined product assets to deliver integrated solutions across a broader span of the post-trade lifecycle. Among our top priorities is the continued transformation of Omgeo ALERT, which is already the industry’s largest database of standing settlement instructions (SSI), into a new utility that will serve as the industry’s “Golden Copy” for SSIs. We intend to enhance the SSI Utility in 2015 to carry collateral SSIs, which will support other new services we plan to offer.
Many companies measure performance over the course of weeks or months, but in the case of our SIFMU businesses, NSCC, FICC and DTC, we have a responsibility to execute seamlessly every day – without interruption. Our role is so essential to the functioning of the financial system that a disruption in the clearance and settlement of trading activity could grind the markets to a halt. We continued our track record of functioning at the highest levels, powered by battle-tested and robust processing engines that handled nearly $1.6 quadrillion in securities transactions in 2014 – an average of about $6.4 trillion per business day.
While the SIFMUs have rightfully earned their stellar reputation across more than four decades of protecting the industry, they were recognized in 2014 for an entirely different reason – their financial strength. Moody’s Investor Services assigned its highest issuer ratings – Aaa long-term and Prime-1 short-term with stable outlooks – to our three clearing agency subsidiaries, placing them among just a handful of corporations to receive this distinction. The rating is a validation of the work we’ve done to strengthen our financial management and reflects the highly robust risk management practices and procedures we’ve implemented in recent years. Along with our strong Standard & Poor’s credit ratings, AA+ long term and A-1+ short term, the new Moody’s ratings will expand our flexibility to utilize creative financial solutions as we grow the company.
While the strength and resiliency of the SIFMUs remain paramount, we also are committed to driving innovation and extending our capabilities in these core activities. A key undertaking is our Risk Transformation Initiative – a multi-year program to dramatically strengthen how we analyze, report and manage risk. We made excellent progress last year as we rolled out a new Data Warehouse to serve as the foundation for risk analytics. We also launched a new platform to bring us closer to real-time risk identification, analysis and reporting. That same intense focus on risk mitigation underpins our plans to provide clearing services in the $1.6 trillion institutional tri-party repo market, an initiative with roots in the financial crisis. Stakeholders consider this initiative an essential ingredient in preventing a future squeeze in the tri-party funding market similar to what occurred during the run-up to the failure of Lehman Brothers in 2008.
Our newest utility-based solutions speak to the innovative spirit that our people bring to work each day. For instance, GTR is one of the most ambitious business projects in the history of DTCC. In 2014, we expanded GTR support for over-the-counter (OTC) derivatives trade reporting to Europe, Singapore, Australia and Canada. Today, we are by far the largest and only truly global repository in the world, covering all five OTC derivatives asset classes and exchange-traded derivatives in seven jurisdictions across more than 20 countries. We’re extremely proud of these accomplishments, and while the roll-out of the service in Europe proved challenging at times last year, we’ve taken steps to ensure a smoother process in the future.
That same intense focus on risk mitigation underpins our plans to provide clearing services in the $1.6 trillion institutional tri-party repo market, an initiative with roots in the financial crisis.
That same spirit of creativity and collaboration sparked the ideas that underpin our three newest joint ventures Clarient™ Global LLC, Soltra™ and DTCC-Euroclear Global Collateral Ltd. all of which launched within just weeks of one another in 2014. These businesses reinforce our pledge to deliver on our multi-year commitment to tackle some of the biggest challenges facing the industry today, such as streamlining the collection and management of legal entity data and documents, increasing the resiliency of critical sectors to cyber attacks and creating a more efficient way for firms to allocate and mobilize collateral globally. As we look to the future, these businesses provide a blueprint for how DTCC will work with its industry partners to develop integrated solutions that drive down processing costs, reduce systemic risk and minimize duplicative infrastructure investments.
An important part of our responsibilities is to look beyond the present, and this is a role we have embraced with enthusiasm. It is reflected in our successful work last year to galvanize the industry to shorten the U.S. settlement cycle, in the new white papers we issued on cyber security and global collateral trends and in our annual systemic risk survey to help identify and start a dialogue on important issues. We are framing industry conversations and helping direct the global conversation in a meaningful way. We will continue to share our insights and expertise with you through robust client interaction and active participation in major industry conferences and events.
We are also keenly aware that our future success is inextricably linked to the most fundamental tenet of business – to put our clients first. We will continue to engage with you, and to serve as advisors on how middle- and back-office automation can help to propel your business growth while introducing greater levels of risk management and efficiency. Most importantly, we promise to honor our legacy by always acting in a manner that is honest and authentic.
At the heart of this commitment are our employees. They are the generators that power the organization, and we are very proud to work alongside such a dedicated and talented team of professionals. They share our passion for the work we do, bringing enormous energy and vision to help drive our company forward each day. We also want to express our appreciation to our Board of Directors whose engagement, intellect and guidance remain essential to our success.
Over the past several years, the industry has been tested by great financial challenges and massive consolidation and retrenchment as well as sweeping changes in market structure. Through it all, DTCC has continued to clear and settle transactions without interruption, while helping to protect the stability of the financial system and growing our capabilities to address our clients’ most demanding operational challenges. 2014 was a year of execution as we started to deliver on our expanded mission. As we look to 2015, we are confident that we remain headed in the right direction, with the right strategy and team in place to deliver on bold ideas to continue to transform the industry and create lasting value for our clients.