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State Street Quarterly Profit Jumps 21% on Lehman Claims

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10/16/2012 | 10:43pm CET

--Profit lifted by 35-cent-a-share gain related to Lehman bankruptcy claims

--Revenue falls 2.9% on lower trading-services revenue, servicing fees

--Expenses down 21%; on track for $180 million cumulative cost savings by year-end

(Adds details throughout)

   By Liz Moyer and Melodie Warner 

State Street Corp.'s (>> State Street Corporation) third-quarter earnings rose 21% to $674 million, bolstered by a gain from claims associated with the Lehman Brothers' bankruptcy, while revenue declined more than expected.

The Boston-based firm is one of the biggest U.S. trust banks, acting as custodian for investment firms' securities and handling other back-office duties that make up the plumbing of Wall Street.

Like many financial firms, though, the company's top and bottom lines have been pressured by historically low interest rates and declining trading volumes as clients grow more risk-averse.

State Street has taken cost-control measures, such as withdrawing from its fixed-income-trading initiative and making targeted staff reductions.

But the company hasn't been moving quickly enough for some. One year ago, activist investor Nelson Peltz of Trian Partners launched a public campaign to push State Street's management to improve profitability and shareholder returns.

The Financial Times reported Monday that four unnamed large shareholders of State Street were pushing for a change of leadership in the company. A State Street spokeswoman declined to comment except to say, "Despite the challenging operating environment, we are confident in the resiliency of our business and proud of our track record."

State Street reported a profit of $674 million, or $1.36 a share, up from $555 million, or $1.10 a share, a year earlier. The most-recent quarter included a gain of 35 cents a share that was primarily for claims associated with the 2008 Lehman Brothers' bankruptcy. Adjusted per-share earnings rose to 99 cents from 96 cents.

Revenue dropped 2.9% to $2.36 billion. Analysts polled by Thomson Reuters had most recently forecast earnings of 96 cents a share on revenue of $2.37 billion.

Chairman and Chief Executive Joseph L. Hooley said in a statement that revenue was hurt by clients who "remain conservative in their investment allocations" despite improved equity markets.

Expenses fell 21% in the third quarter, to $1.42 billion and the company said it was on track to achieve pretax operating expense savings of $90 million to $100 million in 2012. Cumulative expense savings as part of a multiyear restructuring effort are expected to be $180 million by year-end.

State Street has also continued an acquisition streak that investors have criticized for diluting shareholder value. On Monday, the company completed its $550 million acquisition of Goldman Sachs Group Inc.'s (>> Goldman Sachs Group, Inc.) hedge-fund administration business, a deal that makes State Street the biggest manager of behind-the-scenes activities for hedge funds, such as tax reporting and accounting.

Servicing fees were down 0.5% at $1.1 billion.

Trading-services revenue, which includes foreign-exchange trading revenue and brokerage and other fees, declined 31% to $232 million. Foreign-exchange trading revenue decreased 44%, while brokerage and other fees were down 10%.

Securities finance revenue jumped 7.1% to $91 million.

Total assets under management as of at Sept. 30 were $2.065 trillion, up 11% from $1.855 trillion a year ago.

Shares closed up 4.7%, to $43.53 on Tuesday. They are up 8% year-to-date.

Write to Melodie Warner at melodie.warner@dowjones.com

Stocks mentioned in the article : State Street Corporation, Goldman Sachs Group, Inc.
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Sales 2016 10 722 M
EBIT 2016 3 055 M
Net income 2016 1 936 M
Debt 2016 -
Yield 2016 1,76%
P/E ratio 2016 16,78
P/E ratio 2017 14,61
Capi. / Sales 2016 2,93x
Capi. / Sales 2017 2,78x
Capitalization 31 414 M
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Mean consensus HOLD
Number of Analysts 18
Average target price 80,9 $
Spread / Average Target -0,66%
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Joseph L. Hooley Chairman & Chief Executive Officer
Michael F. Rogers President & Chief Operating Officer
Michael W. Bell Chief Financial Officer & Executive Vice President
James S. Phalen Vice Chairman-Management Board & Head-Technology
Albert Jerry Cristoforo Chief Technology Officer & Executive VP
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