State Street Beats Earnings, Revs In Line - Analyst Blog
April 19 2013 - 6:30AM
Zacks
State Street Corporation (STT) reported its
first-quarter 2013 operating earnings of 96 cents per share,
marginally beating the Zacks Consensus Estimate of 93 cents. This
also compares favorably with the prior-year quarter’s earnings of
84 cents.
Better-than-expected results benefited from improvement in fee
income, partially offset by higher operating expenses and decrease
in net interest income. Further, asset position and capital ratios
remain robust.
After considering certain non-recurring items, net income came in
at $455 million or 98 cents per share. This compares favorably with
the year-ago quarter’s net income of $417 million or 85 cents per
share.
Performance in Details
Revenue on an operating basis came in at $2.5 billion, improving
2.0% from $2.4 billion in the prior-year quarter. Operating revenue
was in line with the Zacks Consensus Estimate.
Net interest revenue on an operating basis declined 4.9% from the
previous-year quarter to $577 million. The fall was mainly due to
lower yields on earning assets, partly offset by lower liability
costs. Likewise, net interest margin was 1.31% in the quarter, down
21 basis points year over year, reflecting lower yields on earning
assets and higher levels of client deposits.
Fee revenue came in at $1.89 million, increasing 4.9% from $1.80
billion in the previous year quarter. The rise was attributable to
increases in servicing fees and trading services fees, partially
offset by a fall in securities finance fees as well as processing
and other fees.
On an operating basis, non-interest expenses were $1.81 billion,
inching up 0.7% year over year. The increase was primarily driven
by higher information systems, partially offset by a decline in
compensation and employee benefits expenses, transaction processing
service costs and occupancy expenses.
Total assets under custody and administration were $25.42 trillion
as of Mar 31, 2013, up nearly 9.5% year over year and 4.3%
sequentially. Moreover, State Street’s total assets under
management stood at $2.18 billion, up 9.9% from the last year
quarter and 4.3% from the prior quarter.
Capital and Profitability Ratios
Though State Street’s capital ratios deteriorated, they remained
strong. As of Mar 31, 2013, Tier 1 capital ratio was 18.0%, down
from 19.1% both as of Mar 31, 2012 and Dec 31, 2012. Likewise, Tier
1 common to risk-weighted assets decreased to 16.1% as of Mar 31,
2013 from 17.2% as of Mar 31, 2012 and 17.1% as of Dec 31,
2012.
Further, the estimated Basel III Tier 1 common ratio fell to 10.6%
as of Mar 31, 2013 from 10.8% as of Dec 31, 2012.
Return on common equity (on an operating basis) came in at 8.9%,
increasing from 8.6% in the year-ago quarter but decreasing from
10.3% from the prior quarter.
Share Repurchase
In March, State Street received the Federal Reserve’s approval for
its 2013 capital plans after the clearance of the stress test. Upon
receiving the approval, the company announced a buyback plan
authorizing purchase of up to $2.1 billion worth of stock through
Mar 13, 2014.
During the reported quarter, State Street bought back 6.5 million
shares at an aggregate cost of $360 million. This completes the
company’s share repurchase authorization, which was part of its
2012 capital plan.
Performance of Other Major Regional Banks
Unlike State Street, both The Bank of New York Mellon
Corporation (BK) and Northern Trust
Corporation (NTRS) marginally missed the Zacks Consensus
Estimate. The results for both the companies were adversely
affected by a rise in operating expenses.
Another major bank, BankUnited, Inc. (BKU) is
scheduled to announce reports on Apr 24.
Our Take
We anticipate State Street’s restructuring programs along with
stable core servicing and investment management franchises to help
offset its financial weakness. In addition, the recent acquisitions
will further augment revenues. Also, the capital plan approval
reinforces the company’s priority to enhance shareholders’
value.
The low interest rate environment and deteriorating net interest
revenue are expected to dent State Street’s top line in the
upcoming quarters. Despite these concerns, sound capital deployment
activities will boost investors’ confidence in the stock.
State Street currently carries a Zacks Rank #2 (Buy).
BANK OF NY MELL (BK): Free Stock Analysis Report
BANKUNITED INC (BKU): Free Stock Analysis Report
NORTHERN TRUST (NTRS): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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