State Street Misses, Revs Up - Analyst Blog
April 17 2012 - 8:27AM
Zacks
State Street Corporation (STT) reported first
quarter 2012 operating earnings per share of 84 cents, marginally
below the Zacks Consensus Estimate of 86 cents. This compares
unfavorably with the previous quarter earnings of 93 cents and the
prior-year quarter earnings of 88 cents.
The year-over-year results were negatively impacted by lower fee
income and a rise in expenses. However, these were partly offset by
higher net interest revenue. Moreover, capital ratios were stable
during the quarter.
After considering certain non-recurring items such as
acquisition costs, restructuring expenses, litigation settlement
costs as well as discount accretion related to former conduit
securities, earnings for the quarter came in at 85 cents per share.
Though this compared favorably with the prior-quarter earnings of
76 cents, it is below the year-ago quarter’s earnings of 93
cents.
State Street recorded net income of $410 million on an operating
basis, down 10% from $454 million in the prior quarter and 7% from
$439 million in the prior-year quarter.
During the quarter, State Street, after getting the approval for
its capital plan, increased its quarterly cash dividend to 24 cents
per share. The company also announced a new share repurchase
program authorizing the purchase of up to $1.8 billion of stock
through the first quarter of 2013.
Behind the Headlines
State Street reported revenue of $2.42 billion in the quarter,
up 5% sequentially and 3% year over year. Operating revenue of
$2.40 billion improved from $2.29 billion in the prior quarter and
$2.33 billion in the year-ago quarter. Operating revenue was
slightly higher than the Zacks Consensus Estimate of $2.3
billion.
For the reported quarter, net interest revenue on an operating
basis grew 5% sequentially and 11% year over year to $607 million.
The improvement from the prior-year quarter was primarily due to an
increase in investment portfolio volume and higher yields on
floating-rate securities, partially mitigated by a fall in yield in
the fixed-income portfolio.
Net interest margin on an operating basis (excluding the excess
deposits) was 1.64% in the quarter, up from 1.55% in the prior
quarter, but down from 1.85% in the prior-year quarter.
State Street reported 7% sequential rise in fee revenues during
the quarter to $1.8 billion. However, fee revenue declined
marginally from the year-ago quarter. The year-over-year drop was
mainly due to a fall in trading services fees.
On an operating basis, non-interest expenses were $1.8 billion,
growing 10% sequentially and 6.9% year over year. The rise from the
prior-year quarter was primarily the result of higher salaries and
employee benefits expenses.
Total assets under custody and administration were $23.21
trillion as of March 31, 2012, up 2.6% year over year. However,
State Street’s total assets under management stood at $2.0 billion,
down 6% from the year-ago quarter.
Capital and Profitability Ratios
State Street’s capital ratios remain strong. As of March 31,
2012, Tier 1 capital ratio was 19.1%, slightly up from 18.8% as of
December 31, 2011, but down from 19.6% as of March 31, 2011.
Likewise, Tier 1 common to risk-weighted assets increased to 17.19%
as of March 31, 2012 from 16.8% as of December 31, 2011, but
decreased from 17.5% as of March 31, 2011.
For the reported quarter, return on common equity (on an
operating basis) came in at 8.6% compared with 9.5% in the prior
quarter and 9.9% in the prior-year quarter.
Our Viewpoint
We anticipate the company’s restructuring programs along with
well-off core servicing and investment management franchises to
help offset the weakness caused by the sluggish economic recovery.
However, given the ongoing weakness in the mortgage market, we
remain concerned about the sizable amount of mortgage-backed and
asset-backed securities in its investment portfolio. Despite these
concerns, investors’ confidence is expected to get enhanced as the
company has announced an improved capital deployment program.
Among State Street’s peers, BB&T Corp.
(BBT) is scheduled to report the first-quarter earnings on April 19
while SunTrust Banks Inc. (STI) will report on
April 23.
State Street currently retains a Zacks #3 Rank, which translates
into a short-term ‘Hold’ rating.
BB&T CORP (BBT): Free Stock Analysis Report
SUNTRUST BKS (STI): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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