Tuesday, State Street Corp. (STT) posted higher net profit for the third quarter, but earnings per share declined. Operating earnings fell from last year, yet topped Street view.
The company's third-quarter net income available to common shareholders was $516 million, up 8% from $477 million in the prior-year quarter. Meanwhile, per share earnings declined 5% to $1.04 from $1.09 earned in the corresponding quarter of the previous year.
On an operating basis, net income available to common shareholders decreased 3% to $523 million from $538 million a year earlier. Operating earnings per common share fell 15% to $1.05 from $1.24 in the corresponding quarter of the prior year.
On average, 16 analysts polled by Thomson Reuters expected the company to post earnings of $1.04 per share. Analysts' estimates typically exclude special items.
The company noted that the operating-basis results in the recent quarter excluded $11 million in pre-tax merger and integration costs associated with the Investors Financial Services acquisition.
Total revenue for the recent quarter were down 19% to $2.24 billion from the previous year's $2.77 billion. Total revenue, on an operating basis, totaled $2.27 billion, a decline of $10.6%, compared with $2.54 billion in three months ended September 30, 2008. Twelve Wall Street analysts had a consensus revenue estimate of $2.21 billion for the quarter.
Ronald Logue, State Street's chairman and chief executive officer, said, "Although the economic environment appears to be gradually recovering, the pace of the rebound is slow. Equity markets have improved, providing some support to our servicing and management fee revenue and as liquidity returns to the credit markets, spreads have tightened, thus allowing further continued declines in the unrealized loss in our investment portfolio. In this environment we remain cautious and continue to build our capital ratios, which today are among the strongest in our industry."
Servicing fees fell 14% to $833 million from $966 million last year, primarily impacted by declining markets. Investment management fees, generated by State Street Global Advisors, totaled $219 million, down 16% from $261 million in the prior-year quarter, largely due to about 16% drop in average month-end equity valuations, as well as a change in the composition of assets under management from active to passive strategies.
Trading services revenue, which includes foreign exchange trading revenue and brokerage and other fees, were down 26% to $269 million from $363 million a year ago. Brokerage and other fees increased 11% due primarily to increases in electronic trading.
Securities finance revenue amounted to $105 million, a decline of 57%, compared to $246 million in the previous year, due primarily to compressed spreads as well as lower volumes. Processing fees and other is $45 million, down 29% from $63 million in the third quarter of 2008, primarily hurt by consolidation of the ABCP conduits onto our balance sheet in May 2009.
Further, the company noted that net interest revenue, on an operating basis, grew 18% to $754 million from $640 million in the third quarter of 2008, driven by the $279 million of discount accretion on securities in the investment portfolio recorded following the consolidation of the ABCP conduits. This increase is offset partially by lower rates negatively affecting the yield on floating-rate assets, and both lower volumes and spreads on customer deposits.
For the nine-month period, net loss available to common shareholders totaled $2.35 billion or $5.05 per share, compared to a profit of $1.56 billion or $3.78 per share in the year-ago period.
On an operating basis, net income available to common shareholders was $1.46 billion or $3.13 per share, compared to $1.66 billion or $4.03 per share in the same period of last year.
Year-to-date, total revenue dropped 21% to $6.36 billion from $8.02 billion reported in the comparable period of the previous year. On an operating basis, total revenue fell 17.7% to $6.45 billion from $7.84 billion reported a year ago.
Looking ahead, the company currently projects fiscal 2009 earnings to range between $4.13 and $4.17 per share, and operating revenues to decline about 16% from 2008, citing the slow pace of the economic recovery. The company also expects operating return on equity to be between 14% and 17% in line with its long-term outlook. Further, State Street said it expects second half of 2009 to be stronger than it now appears to be. Analysts expect the company to post earnings of $4.16 per share on revenue of $8.64 billion for fiscal 2009.
Among other players in the field, Bank of New York Mellon Corp. (BK) posted third-quarter net loss applicable to common shareholders of $2.46 billion or $2.05 per common share, compared to a profit of $303 million or $0.26 per common share in the third quarter of 2008. Total fee revenue for the quarter was $2.617 billion, a decline from the previous year's $3.088 billion.
State Street shares, which have been trading between $14.43 and $55.87 in the past 52 weeks, are currently trading at $48.31, down $3.94 or 7.54%.
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