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State Street (STT - Get Report) is another special case in the banking business. Unlike its traditional big banking peers, State Street is a trust bank. That means that it focuses on asset management, custody, and administration instead of retail and commercial lending. Because of that, State Street's revenues aren't earned on the spread between the rates they charge and the rates they pay; they're earned on stable fees.
There are a few tailwinds that should help State Street grow its income statement in the next couple of years. The first is stocks. With an equity rally that's already sent the S&P more than 13% higher this year, State Street is looking at expanding assets under custody -- and since the firm is paid on the size of the assets it's watching, a climbing market is a good thing for investors.
At the same time, the continued popularity of ETFs is another tailwind. State Street is one of the biggest ETF sponsors in the marketplace, so it benefits by having more products out there.
State Street made some big strides to shore up its financial condition during the financial crisis, and now, with that behind it, the firm's financials look attractive again. With shares trading just around book value right now, STT sports the type of discount that more traditional banks are trading for; that makes this trust bank a bargain right now.
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