By Ross Kerber and Tanya Agrawal
Jan 24 Shares in State Street Corp fell
on Friday after the world's second-largest standalone custody
bank reported operating results below expectations and said it
could face rising regulatory costs.
State Street of Boston reported solid fourth-quarter results
in some areas like its asset-servicing business, driving net
income for the period to $545 million, or $1.22 per share, from
$468 million, or $1.00 per share, a year earlier.
But shares were down 4.1 percent in midday trading to
$69.78, lower than rival BNY Mellon Corp, whose shares
were down 2 percent at $32.44.
Excluding items like a tax benefit, State Street reported
earnings of $514 million, or $1.15 per share, on an operating
Analysts, on average, had expected a profit of $1.19 per
share, according to Thomson Reuters I/B/E/S. Several said they
regarded the operating result as an earnings miss.
Expenses seemed high since State Street had emphasized
cost-cutting efforts in the past via layoffs and a revamp of its
IT strategy, said Evercore Partners analyst Andrew Marquardt.
The overall results were "a disappointment, given that
expense has been a key area for State Street for a long time,"
He noted company executives declined to provide some details
about the expenses to analysts during a conference call on
Friday, saying further information would be given at a meeting
scheduled for February.
"'Wait until analyst day' is a little frustrating to hear,"
Some spending remains hard to forecast, State Street Chief
Financial Officer Michael Bell said on the call, such as the
costs of meeting new regulations put in place after the
"I would say the big wild card really the higher legal
and regulatory compliance costs," Bell said.
Chief Executive Jay Hooley said on the call that State
Street benefited from strong equity markets but that areas like
its trading operations were weakened by market volatility.
State Street manages cash for companies and handles
back-office processing of securities and banking transactions
for fund managers, among its other businesses. It no longer has
Rival BNY Mellon, the world's largest custody bank, reported
a modest increase in fourth-quarter profit last Friday.
State Street's total operating revenue rose 2.6 percent to
$2.53 billion for the three months ended December 31
Revenue at the asset servicing business rose 7.1 percent to
$1.23 billion, while it increased 5.9 percent to $125 million in
foreign exchange trading.
Assets under custody and administration rose 12.5 percent to
$27.43 billion as of Dec. 31.
Compensation and employee benefit costs increased 2.1
percent to $934 million.