State Street Q2 Profit Up 19%, Beats View

(RTTNews) - Custody bank State Street Corp. (STT) on Friday reported 19 percent increase in profit for the second quarter, reflecting servicing fee revenue growth amid improved global equity markets. Adjusted earnings per share topped analysts' expectations. Assets under management rose 13 percent from the prior-year period.

Joseph Hooley, chairman, president and chief executive officer of State Street, said, "We reported a strong second quarter with revenue growth driven by new business and improved equity markets. Seasonal factors and increased market volatility benefited our securities finance and foreign exchange businesses."

Boston, Massachusetts-based State Street's second-quarter net income available to common shareholders rose to $571 million or $1.24 per share from $480 million or $0.98 per share in the year-ago period.

Adjusted net income for the quarter was $571 million or $1.24 per share, compared to $494 million or $1.01 per share in the prior-year quarter. On average, analysts polled by Thomson Reuters expected the company to report earnings of $1.19 per share for the quarter. Analysts' estimates typically exclude special items.

Revenue for the quarter increased 6 percent to $2.56 billion from $2.42 billion in the same period last year. Adjusted revenue for the quarter was $2.58 billion, compared to $2.46 billion in the prior year. Analysts had a consensus revenue estimate of $2.54 billion.

Total servicing fee revenue for the quarter grew 11 percent to $1.20 billion, primarily due to stronger global equity markets, net new business, and the acquired Goldman Sachs Administration Services business.

Foreign-exchange trading revenue surged 33 percent to $171 million, while brokerage and other fees edged down 0.8 percent to $125 million. Total trading services revenue rose 16 percent to $296 million.

Meanwhile, net interest revenue declined 11 percent to $596 million, with net interest margin declining 23 basis points to 1.31 percent due to lower yields on earning assets and higher central bank balances.

State Street said it achieved positive operating leverage of 347 basis points compared to the same period of the previous year.

Total assets under custody and administration as at the end of the second quarter was $25.74 trillion, up 15 percent from $22.42 trillion at the end of the year-ago quarter. Assets under management rose 13 percent to $2.15 trillion from $1.91 trillion in the same period last year.

Return on average common shareholders' equity was 11.3 percent, up from 9.1 percent in the year-ago quarter.

Looking ahead, State Street said its Business Operations and Information Technology Transformation program is on track to achieve total incremental estimated pre-tax expense savings of about $220 million in 2013.

STT closed Thursday's trading at $70.10, up $0.70 on a volume of 3.28 million shares.