Custodial bank State Street Corp. (STT: Quote) reported Tuesday a profit for the second quarter that declined from last year, reflecting a drop in fee revenue. Both adjusted earnings and quarterly revenues topped analysts' expectations.
Separately, State Street agreed to acquire the hedge-fund administration business of investment bank Goldman Sachs Group, Inc. (GS) for $550 million in cash. The deal is expected to close in the fourth quarter of fiscal 2012. State Street expects the deal to be accretive in the first full year of operation on a cash basis.
The acquisition of Goldman Sachs Administration Services or GSAS, will propel State Street as the leading global hedge fund administrator globally, with estimated 700 billion in funds under administration. The deal does not include Goldman Sachs' Prime Brokerage business.
"During the second quarter our business performed well in a challenging economic environment which included increasing weakness in international markets," Chairman, President and CEO Joseph Hooley said in a statement.
Boston, Massachusetts-based State Street reported net income of $480 million or $0.98 per share for the second quarter, lower than $502 million or $1.00 per share in the prior-year quarter, but higher than $417 million or $0.85 per share in the first quarter.
On an operating basis, net income for the quarter grew to $494 million or $1.01 per share from $483 million or $0.96 per share in the year-ago quarter.
On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $0.98 per share for the quarter. Analysts' estimates typically exclude special items.
State Street's total revenues for the quarter decreased 2.7 percent to $2.42 billion from $2.49 billion in the previous year. On an operating basis, revenues edged down to $2.43 billion from $2.47 billion in the same quarter last year, but topped seventeen Wall Street analysts' consensus estimate of $2.42 billion by a whisker.
Total fee revenue for the quarter decreased 6 percent to $1.78 billion, while net interest revenue grew 17 percent to $672 million, and increased 13.5 percent to $629 million on an operating basis.
Total assets under custody and administration as at June 30, 2012 were $22.42 trillion, down from $22.76 trillion at the end of the year-ago period. Meanwhile, assets under management decreased to $1.91 trillion from $1.98 trillion last year.
Return on average common shareholders' equity was 10.0 percent, compared to 10.6 percent in the year-ago quarter.
"As we have stated previously, we are approaching the second half of 2012 with continued caution. The global economic environment remains challenging and so we are focused on controlling what we can: delivering value-added solutions to our clients, executing on our business operations and information technology transformation program and continuing to manage expenses," Hooley added.
STT closed Monday's regular trading session at $44.14, up $0.11 on a volume of 2.07 million shares. The stock has been trading in a range of $29.86 to $47.20 in the past 52 weeks.
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by RTT Staff Writer
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