Fitch: Higher Markets Support State Street's 1Q13 Earnings

Fri Apr 19, 2013 1:20pm EDT

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(The following statement was released by the rating agency) CHICAGO, April 19 (Fitch) State Street (STT) reported net income of $455 million in 1Q13 modestly down from $468 million in 4Q12, according to Fitch Ratings. This quarter's results equate to a 9.1% return on average equity (ROAE), which from a credit perspective Fitch continues to view as satisfactory and somewhat consistent with peer institutions, but results remain below STT's historical averages. STT's total revenue was down slightly compared to the sequential quarter, as improvements in servicing and management fees driven in large part by higher markets, as well as a significant increase in foreign exchange trading was offset by continued decline in net interest revenue amid the protracted low interest rate environment. STT's net interest margin (NIM) declined to 1.31% in 1Q13 from 1.36% in the prior quarter as STT experience a greater than expected inflow of deposits. Expenses increased 5.7% from the sequential quarter due primarily to equity incentive compensation expense for retirement eligible employees and higher payroll taxes. Despite this increase, Fitch STT continues to be focused on managing expenses, particularly as the revenue environment noted above continues to remain challenging. STT continues to grow its strong franchise in asset custody and in asset management. The bank's total assets under custody and administration (AUCA) now amount to $25.4 trillion up 4.3% from YE2012, and total assets under management (AUM) amount to $2.18 trillion, also up 4.3% from YE2012. Each of these benefited from a mix of new business wins and higher equity markets on the quarter. In addition, STT's exchange traded fund (ETF) business continues to exhibit strong growth. STT's capital ratios remain strong, though they did modestly decline from the prior quarter.. The company's Tier 1 common ratio at 1Q13 was strong at 16.1%, though down from 17.1% at YE2012. This ratio continues to compare favorably to peer institutions. Under current Basel 3 proposals STT estimates that its Tier 1 common ratio would have been 10.6%, just down modestly from 10.8% at YE2012, and STT further estimates that with additional securities run-off to optimize its risk-weighted assets, STT's pro forma Basel 3 Tier 1 common ratio would have been 11.4%. STT's Basel 3 ratios also compare favorably with other peer institutions. Contact: Primary Analyst Justin Fuller, CFA Director +1-312-368-2057 Fitch Ratings, Inc. 70 West Madison St. Chicago, IL 60602 Secondary Analyst Joseph Scott Senior Director +1-212-908-0624 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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