--Revenue rises 6% while expenses rise 4%
--Client "re-risking" bodes well for early 2013, CEO says
--Plan to eliminate 630 jobs, record $139 million charge
(Updates with information from the conference call and new share
price)
By Liz Moyer and Melodie Warner
State Street Corp.'s (STT) fourth-quarter earnings beat
expectations, rising 23% as higher servicing fees helped to offset
lower trading-services and securities finance revenue.
Revenue of $2.4 billion rose 6%, while expenses of $1.8 billion
rose 4%, providing the positive operating leverage investors have
been pushing State Street to achieve.
Shares rose 6.7% to $53.79, hitting their highest point in more
than three years. The stock has gained 35% over the past 12
months.
State Street is one of the country's largest trust banks, acting
as a custodian for investment firms' securities and handling other
back-office duties. As with many financial firms, the company's top
and bottom lines have been pressured by historically low interest
rates and declining trading volumes.
On a conference call to discuss earnings on Friday, Chairman and
Chief Executive Joseph Hooley said late-year trends in client
activity boded well for the start of the new year. In December,
clients that had waited out last year's economic uncertainty
started moving assets out of conservative fixed-income investments
and into riskier U.S. and global equities. That re-risking has
continued into January, he said.
"I remain confident in the secular trends underpinning the
prospects for growth in this business and I believe we have the
right focus in the short term to position us well for continued
strong performance," Mr. Hooley said.
State Street continues to take a hard line on expenses despite
improving business trends. It disclosed plans to cut about 630
positions world-wide and take a $139 million restructuring charge,
actions it said would better align its expenses with its business
outlook for 2013. The company had 29,740 employees at the end of
2011.
State Street has already taken some cost-control measures, such
as withdrawing from its fixed-income-trading initiative and making
targeted staff reductions. It is undergoing a multiyear effort to
streamline technology and reduce costs, anticipating $220 million
of cost savings this year as part of that program.
The company also bought Goldman Sachs Group Inc.'s (GS)
hedge-fund administration business for $550 million in October, a
deal that makes State Street the biggest manager of
behind-the-scenes activities for hedge funds, such as tax reporting
and accounting.
State Street reported a profit of $470 million, or $1 a share,
up from $381 million, or 76 cents a share, a year earlier.
Excluding items such as litigation, acquisition and restructuring
costs, adjusted earnings rose to $1.11 a share from 93 cents.
Analysts polled by Thomson Reuters had most recently forecast
earnings of $1 a share on revenue of $2.36 billion.
Servicing fees rose 8.8% to $1.15 billion.
Trading-services revenue, which includes foreign-exchange
trading revenue and brokerage and other fees, declined 11% to $243
million. Securities finance revenue dropped 18% to $74 million.
Total assets under management as of Dec. 31 were $2.089
trillion, up 13% from $1.845 trillion a year ago. Assets under
custody and administration rose 12%, to $24.4 trillion.
Write to Liz Moyer at liz.moyer@dowjones.com and Melodie Warner
at melodie.warner@dowjones.com.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires