State Street Profit Beats Estimates, Lifts Stock -- Update
October 18 2019 - 2:57PM
Dow Jones News
By Justin Baer and Robert Barba
State Street Corp. posted quarterly results that beat Wall
Street estimates and offered investors some signs of a
turnaround.
The custody bank's shares rose 5.5% to $63.01 in midday trading
Friday and were on pace for their biggest one-day gain in more than
a month.
State Street's profit dropped nearly 24% to $583 million, or
$1.42 a share, in the quarter, compared with $764 million, or $1.87
a share, a year earlier. Total revenue slipped 2.9% to $2.9
billion.
Quarterly profit and revenue exceeded analysts' average
estimates, though, according to FactSet. And the bank's revenue
rose 1% from its total three months earlier, thanks to stock-market
gains and some new business wins by its core division that provides
accounting and administrative services to other asset managers.
"We are making progress," Ron O'Hanley, chief executive of State
Street, said Friday during a conference call with analysts.
State Street and rival Bank of New York Mellon Corp. have been
mired in yearslong turnaround plans aimed at slashing expenses,
modernizing technology systems and identifying new businesses that
can help jump-start growth. Both custody banks also turned to new
leaders, with Mr. O'Hanley stepping in as State Street's CEO at the
start of this year.
Whatever momentum that had been building at each of those banks
appeared to stall in late 2018, when a sharp stock-market selloff
cut into many of the businesses that collect fees on the assets
they oversee for clients. Clients continue to shift more money into
low-cost investment funds from those that command higher fees,
ramping up the pressure on both asset managers and their custody
banks to cut fees.
More recently, a drop in long-term debt yields crimped interest
income.
In an interview, Mr. O'Hanley said those factors still weigh on
the industry. But the bank is on track to meet its goal of wringing
$400 million in expenses by the end of 2019, he said. Recent
efforts to renegotiate contracts with its largest clients have
slowed what has been a relentless march toward lower fees in
asset-servicing, and State Street's acquisition of
investing-analytics platform Charles River Systems Inc. is starting
to bear fruit, he added.
"You can't stop the headwinds, but they're doing the things they
can to control expenses and improve their technology offerings,"
said Patrick Voigt, an analyst at Centerstone Investors, which owns
State Street shares.
Fee income was $2.26 billion in the third quarter, down 2.5%
from a year earlier. Net interest income totaled $644 million, down
4.2% from a year earlier.
Total assets under custody and/or administration fell 3.2% to
$32.9 trillion. Assets under management totaled $2.95 trillion, up
5.1%.
Mr. O'Hanley said recent moves by online brokers to eliminate
commission costs on stock and exchange-traded fund trades will
benefit State Street's asset-management arm, which runs one of one
the biggest ETF businesses.
Some of those brokers had offered commission-free trading on
only some ETFs, so this month's announcements should level the
playing field on platforms that had previously still charged for
trades on State Street ETFs, he said.
Write to Justin Baer at justin.baer@wsj.com and Robert Barba at
Robert.Barba@wsj.com
(END) Dow Jones Newswires
October 18, 2019 14:42 ET (18:42 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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