By Daniel Huang And Chelsey Dulaney
State Street Corp. posted better-than-expected profit in its
first quarter, driven by a surge in foreign-exchange trading and
stronger fee revenue, but announced another addition to its legal
reserves for currency-related claims.
Monetary policies abroad and diverging interest rate
expectations for the U.S. relative to most other economies drove up
foreign-exchange trading volume, helping offset the adverse impact
of a stronger dollar, said Chief Executive Joseph L. Hooley in a
news release.
For the first quarter, the Boston-based bank reported earnings
of $377 million, up from $356 million a year ago. On a per-share
basis, earnings rose to 90 cents from 81 cents a year earlier.
On an operating basis, profit was $1.17 a share. Revenue
improved to $2.61 billion from $2.49 billion a year ago.
Analysts polled by Thomson Reuters estimated an operating profit
of $1.05 a share and revenue of $2.67 billion.
State Street added a $150 million charge to its legal reserves
for resolving outstanding claims related to foreign-exchange
activities. In a conference call with analysts, Chief Financial
Officer Michael Bell noted the possibility that a resolution
couldn't be reached and that ultimate legal costs "may be much
more."
These costs are "not insignificant," said Edward Jones analyst
Jim Shanahan in a note, observing that the bank had contributed
$330 million to legal reserves over the last three quarters. Shares
of State Street were down 2% in morning trading.
Assets under custody and administration increased 3.7% to $28.5
trillion while assets under management increased to $2.44 trillion,
up from $2.38 trillion a year ago. In State Street's
trading-services business, revenue grew 28.1%, driven by a 51.5%
surge in foreign-exchange trading.
Actions taken by central banks around the world to increase
quantitative easing helped lift global equity markets and
contributed to greater volatility in fixed-income and
foreign-exchange markets, State Street said, driving higher
deposits into the firm.
Despite the negative effects of a stronger dollar, net new
business and stronger equity markets boosted servicing fees 2.8% to
$1.27 billion and management fees 3.1% to $301 million.
Amid low interest rates, net interest revenue decreased to $546
million, from $555 million in the first quarter of 2014, and net
interest margin continued to be squeezed, down to 1.01% from 1.24%
a year ago.
Rival Bank of New York Mellon Corp. reached a $714 million
settlement with regulators in March to resolve allegations of
overcharging clients on currency transactions. State Street revised
its 2014 fourth-quarter earnings in February to increase legal
reserves by $65 million to resolve currency claims related to its
custodial clients.
Peers BNY Mellon and Northern Trust Corp. both reported
better-than-expected first quarter earnings earlier this week.
Write to Daniel Huang at dan.huang@wsj.com and Chelsey Dulaney
at Chelsey.Dulaney@wsj.com
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