State Street to Cut Jobs, Misses Expectations -- 2nd Update
October 23 2015 - 2:49PM
Dow Jones News
By Lisa Beilfuss
State Street Corp. on Friday said it would slash jobs as the
trust bank became the latest firm to report choppy markets bit into
its bottom line in the third quarter.
Shares fell as much as 5.7% on Friday and were off 3.7% to
$66.29 in recent trading, pushing the stock's year-to-date loss to
15%.
Chief Executive Joseph Hooley said the results--which included a
flat profit and a decline in assets--reflect the global decline in
equity valuations, particularly in emerging economies, combined
with prolonged low interest rates and a strong U.S. dollar.
Markets were especially volatile in the quarter, rattled by
renewed concerns about the economy's health. Earlier this week,
fellow trust bank Bank of New York Mellon similarly pointed to
unfavorable market conditions for its third-quarter profit decline,
and several large money managers said they were bruised by market
declines and investor outflows.
"Gyrations in Chinese equity markets, which had been ignored
earlier in the year, began to impact markets more broadly," Mr.
Hooley said on a call with analysts and investors, according to a
FactSet transcript, highlighting a double-digit depreciation in
many emerging market currencies.
State Street's asset servicing and investment management
businesses are highly dependent on overall market performance, and
both were hurt by weakness and volatility throughout global equity
markets during the quarter, said Edward Jones analyst James
Shanahan.
Lower equity markets drove down the bank's assets, with assets
under custody and administration declining 4.2% to $27.27 trillion
and assets under management dropping 9% to $2.2 trillion.
Lower assets, coupled with more cautious risk sentiment, cut
into fee revenue. Fees rose 4.8% from a year earlier and 1.2%
sequentially to $2.11 billion. On a call with analysts and
investors, Chief Financial Officer Michael Bell warned that the
bank is likely to fall short of its guidance for 4% to 7% fee
growth this year.
But core business trends were also disappointing, Mr. Shanahan
said, as new business wins were softer than expected and as the
bank continued to see investment outflows.
Pointing to the continued challenging environment, Mr. Hooley
said State Street is accelerating its cost-cutting plan. During the
quarter, the firm took a $75 million severance charge stemming from
layoffs, and State Street said it plans to cut between 200 to 600
jobs globally. The company expects to save $50 million after the
layoffs are completed by the end of next year and is targeting $500
million in overall savings over a four- to five-year time
frame.
State Street said Friday that it significantly reduced its
balance sheet during the period, by $44 billion. The Wall Street
Journal reported earlier this month that the bank had started
charging some customers for large dollar deposits, a move that
comes as banks are awash with cash amid low interest rates. On the
earnings call, Mr. Bell said net interest revenue is likely to come
in at the low end of the company's $2.16 billion to $2.22 billion
forecast, partly due to plans for continued balance sheet
reduction.
In all for the quarter, State Street reported a profit of $543
million, little changed from a year earlier. Per-share earnings
rose to $1.32 from $1.26 as the company reduced its shares
outstanding by 4.1%.
On an operating basis, which excludes severance costs and a real
estate gain, among other items, earnings dropped to $1.16 a share
from $1.35. Revenue inched up to $2.62 billion from $2.61 billion.
Operating revenue, meanwhile, was $2.65 billion.
Analysts projected $1.23 in per-share operating earnings on
$2.67 billion in operating revenue, according to Thomson
Reuters.
Assets under custody and administration declined 4.2% to $27.27
trillion, while assets under management dropped 9% to $2.20
trillion. Fee revenue rose 4.8% to $2.11 billion.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
October 23, 2015 14:34 ET (18:34 GMT)
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