By Daniel Huang And Michael Calia
State Street Corp. said its third-quarter profit rose 2.1%
behind growth in fee revenue.
The profit figure exceeded analysts' expectations, sending
shares as much as 7% higher after markets opened.
State Street posted earnings of $542 million, or $1.26 a share,
up from $531 million, or $1.17 a share, in the prior-year period.
On an operating basis, per-share earnings were $1.35, compared with
$1.19 a year earlier. Revenue rose 6.2% to $2.58 billion, and
operating revenue rose 8.5% to $2.68 billion.
Performance topped expectations despite a "traditionally slow
seasonal quarter," said State Street Chief Executive Joseph L.
Hooley in a conference call. Analysts had projected earnings of
$1.21 a share and revenue of $2.62 billion.
The company noted stronger revenues were due in part to good
growth in fees from its asset servicing and asset management
divisions.
"Despite the current challenges we face from low interest rates,
we have leveraged our strong market positions and capabilities to
generate profitable top-line growth," Mr. Hooley said in a
statement.
The Boston trust bank had been concerned about continued low
levels of interest rates and volatility, along with regulatory
compliance costs. Last month, State Street released stress test
data that indicated it would have weaker capital levels under a
potential economic downturn than it had estimated last year.
The company said Friday that its overall expenses rose 9.9% to
$1.89 billion year-over-year, while they grew 2.2% in comparison to
the previous period. Operating expenses rose to $1.81 billion, up
from $1.69 billion from a year ago, though they fell slightly
compared with $1.82 billion in the second quarter. Compensation and
employee benefits fell to $955 million, a 2% fall from the second
quarter, due to a stronger U.S. dollar and lower incentive
compensation costs. However, they increased 5.8% from a year ago,
driven by new business support and higher regulatory compliance
costs.
State Street shares have "underperformed headed into earnings,"
said Citigroup Inc. analyst Keith Horowitz in a note.
State Street said it had $2.42 trillion in assets under
management at the end of the most recent period, compared with
$2.24 trillion in the year-ago quarter. Assets under custody and
administration improved to $28.46 trillion from $26.03
trillion.
Servicing fees rose 7.5% to $1.3 billion, mainly because of
stronger global equity markets and new business. Management fees
increased more than 14% to $316 million, benefiting from new
business, higher fees and strength in equity markets.
The bank also announced setting aside $53 million for potential
settlements on claims arising from its indirect foreign exchange
client activities. "We expect net interest revenue to decrease" in
the fourth quarter, said Chief Financial Officer Michael Bell in a
conference call, as well as higher expenses due to "higher
regulatory costs and delayed timing of third-quarter expenses"
related to the hiring of outside consultants.
State Street's results come after rival Bank of New York Mellon
Corp. reported earnings on Tuesday of $1.08 billion, or 64 cents a
share--beating analyst expectations--on the back of a growing asset
management business and increased revenue from fees.
Write to Michael Calia at michael.calia@wsj.com
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