State Street Corp. said on Tuesday third-quarter net income rose slightly from year-earlier levels, getting a lift from tax benefits and double-digit gains from servicing and investment management fees.
Boston-based State Street, the world’s third-largest institutional investor, reported net income of $543 million, or $1.10 a share. That compared with $540 million, or $1.08 a share, in the year-before period.
Analysts, on average, had been looking for State Street to earn 88 cents a share, according to estimates compiled by Thomson Reuters I/B/E/S. State Street said its results included a benefit of 18 cents a share from restructuring conduit assets.
Revenue in the third quarter was $2.43 billion, up 5 percent from $2.3 billion in the year-earlier period. Investment management fees generated by State Street Global Advisors rose 17 percent to $229 million from year-ago levels. The business got a boost from the acquisition of Bank of Ireland’s asset management business.
Analysts had been downbeat about State Street’s prospects because of ultra-low interest rates and depressed stock market levels. U.S. investors withdrew a net $45.7 billion from long-term mutual funds in the third quarter, according to Morningstar Inc. That was partially offset by investors adding a net $19.7 billion to exchange-traded funds during the quarter.
State Street also is under pressure from billionaire investor Nelson Peltz, whose Trian Partners says the company has sacrificed profits for revenue growth. In a critique of State Street operations, Trian said the company’s employee compensation expenses are too high. But in the third quarter, State Street said salary and employee benefit costs fell 4.4 percent from the previous three months.
Still, State Street executives are bracing for a slowdown and higher costs.
"We expect to face a prolonged, worldwide low interest-rate environment, constrained economic growth, anticipated higher capital requirements, and increased regulatory and compliance costs," State Street Chairman and Chief Executive Jay Hooley said in a press release.
RBC Capital Markets analyst Gerard Cassidy said higher growth assumptions from cross-selling lucrative services such as foreign exchange trading and securities lending have changed for U.S. custody banks.
In addition, Cassidy said there is enormous pressure on the industry’s net interest margin in an environment of ultra-low interest rates.
State Street shares are down 27 percent this year, underperforming the 4.5 percent decline on the Standard & Poor’s 500 Index.
