State Street Corporation (STT) reported its
second quarter 2012 operating earnings per share of $1.01,
marginally surpassing the Zacks Consensus Estimate of 99 cents.
This also compares favorably with the previous-quarter earnings of
84 cents and the year-ago earnings of 96 cents.
After considering certain non-recurring items such as
acquisition costs, restructuring expenses, litigation settlement
costs, loss on sale of securities as well as discount accretion
related to former conduit securities, net income for the quarter
came in at $480 million or 98 cents per share.
Though this compares favorably with the prior-quarter net income
of $417 million or 85 cents per share, it came in below the
year-ago net income of $502 million or $1.00.
The sequential improvement came on the back of enhanced net
interest revenue and reduced operating expenses. The capital ratios
of the company also remained strong in the quarter. However lower
fee revenue was the headwind.
State Street’s net income available to shareholders was $494.0
million on an operating basis, up 20.5% from $410 million in the
prior quarter and 2.3% from $483 million in the prior-year
quarter.
Quarter in Detail
Revenue for the quarter was $2.42 billion, which almost remained
unchanged sequentially. Revenue on an operating basis came in at
$2.43 billion, up almost 1% from $2.40 billion in the prior
quarter. Operating revenue was slightly lower than the Zacks
Consensus Estimate of $2.44 billion.
For the reported quarter, net interest revenue on an operating
basis grew 3.6% sequentially to $629 million. The improvement from
the prior quarter was primarily due to lower funding costs along
with increases in investments, which were partially offset by
reduced asset yields.
Net interest margin was 1.72% in the quarter, up 8 basis points
(bps) from 1.64% in the prior quarter.
Fee revenues came in at $1.78 million, slightly down by 0.4%
from the prior quarter. The sequential decline can be attributed to
lower trading service fees along with lower processing and other
fees, partially offset by higher service fees, management fees and
securities finance fees.
On an operating basis, non-interest expenses were $1.73 billion,
declining 3.9% sequentially. The fall was due to lower compensation
and employee benefits, reduced transaction processing service costs
as well as occupancy costs, partially mitigated by higher
information systems and communication expenses and other costs.
Asset Position
Total assets under custody and administration were $22.42
trillion as of June 30, 2012, down 3.4% sequentially and 1.5% on a
year-over-year basis. Moreover, State Street’s total assets under
management stood at $1.91 billion, down 3.6% from the prior quarter
and 9.0% from the year-ago quarter.
Capital and Profitability Ratios
State Street’s capital ratios remained strong. As of June 30,
2012, Tier 1 capital ratio was 19.9%, up from 19.1% as of March 31,
2012, and 18.9% as of June 30, 2011. Likewise, Tier 1 common to
risk-weighted assets increased to 17.9% as of June 30, 2012 from
17.2% as of March 31, 2012, and 16.9% as of June 30, 2011.
For the reported quarter, return on common equity (on an
operating basis) came in at 10.3% compared with 8.6% in the prior
quarter and 10.2% in the prior-year quarter.
Share Repurchase
In March, State Street, after receiving the approval for its
capital plan, had announced a new share repurchase program
authorizing the purchase of up to $1.8 billion of stock through the
first quarter of 2013.
During the reported quarter, State Street bought back shares
worth $480 million at an average price of $43.26 per share.
Acquisition
Concurrent with the earnings release, State Street announced the
acquisition of Goldman Sachs Administration Services (GSAS) – a
leading hedge fund administrator – from The Goldman Sachs
Group, Inc. (GS). It is an all-cash deal worth $550
million.
The deal is subject to regulatory approvals and is expected to
close in the last quarter of 2012. The acquisition will further
strengthen State Street’s hedge fund business.
Our Viewpoint
We anticipate State Street’s restructuring programs along with
well-off core servicing and investment management franchises to
help offset the weakness caused by the slow economic recovery.
However, given the ongoing weakness in the mortgage market, we
remain concerned about the considerable amount of mortgage-backed
and asset-backed securities in its investment portfolio.
State Street currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we
maintain a long-term Neutral recommendation on the shares.
Among State Street’s peers, BB&T
Corporation (BBT) is scheduled to report the first-quarter
earnings on July 19, while SunTrust Banks Inc.
(STI) will report on July 20.
BB&T CORP (BBT): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
SUNTRUST BKS (STI): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
State Street (NYSE:STT)
Historical Stock Chart
From Aug 2024 to Sep 2024
State Street (NYSE:STT)
Historical Stock Chart
From Sep 2023 to Sep 2024