--Profit lifted by 35-cent-a-share gain related to Lehman
bankruptcy claims
--Revenue falls 2.9% on lower trading-services revenue,
servicing fees
--Expenses down 21%; on track for $180 million cumulative cost
savings by year-end
(Adds details throughout)
By Liz Moyer and Melodie Warner
State Street Corp.'s (STT) third-quarter earnings rose 21% to
$674 million, bolstered by a gain from claims associated with the
Lehman Brothers' bankruptcy, while revenue declined more than
expected.
The Boston-based firm is one of the biggest U.S. trust banks,
acting as custodian for investment firms' securities and handling
other back-office duties that make up the plumbing of Wall
Street.
Like many financial firms, though, the company's top and bottom
lines have been pressured by historically low interest rates and
declining trading volumes as clients grow more risk-averse.
State Street has taken cost-control measures, such as
withdrawing from its fixed-income-trading initiative and making
targeted staff reductions.
But the company hasn't been moving quickly enough for some. One
year ago, activist investor Nelson Peltz of Trian Partners launched
a public campaign to push State Street's management to improve
profitability and shareholder returns.
The Financial Times reported Monday that four unnamed large
shareholders of State Street were pushing for a change of
leadership in the company. A State Street spokeswoman declined to
comment except to say, "Despite the challenging operating
environment, we are confident in the resiliency of our business and
proud of our track record."
State Street reported a profit of $674 million, or $1.36 a
share, up from $555 million, or $1.10 a share, a year earlier. The
most-recent quarter included a gain of 35 cents a share that was
primarily for claims associated with the 2008 Lehman Brothers'
bankruptcy. Adjusted per-share earnings rose to 99 cents from 96
cents.
Revenue dropped 2.9% to $2.36 billion. Analysts polled by
Thomson Reuters had most recently forecast earnings of 96 cents a
share on revenue of $2.37 billion.
Chairman and Chief Executive Joseph L. Hooley said in a
statement that revenue was hurt by clients who "remain conservative
in their investment allocations" despite improved equity
markets.
Expenses fell 21% in the third quarter, to $1.42 billion and the
company said it was on track to achieve pretax operating expense
savings of $90 million to $100 million in 2012. Cumulative expense
savings as part of a multiyear restructuring effort are expected to
be $180 million by year-end.
State Street has also continued an acquisition streak that
investors have criticized for diluting shareholder value. On
Monday, the company completed its $550 million acquisition of
Goldman Sachs Group Inc.'s (GS) hedge-fund administration business,
a deal that makes State Street the biggest manager of
behind-the-scenes activities for hedge funds, such as tax reporting
and accounting.
Servicing fees were down 0.5% at $1.1 billion.
Trading-services revenue, which includes foreign-exchange
trading revenue and brokerage and other fees, declined 31% to $232
million. Foreign-exchange trading revenue decreased 44%, while
brokerage and other fees were down 10%.
Securities finance revenue jumped 7.1% to $91 million.
Total assets under management as of at Sept. 30 were $2.065
trillion, up 11% from $1.855 trillion a year ago.
Shares closed up 4.7%, to $43.53 on Tuesday. They are up 8%
year-to-date.
Write to Melodie Warner at melodie.warner@dowjones.com