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State Street Corp. CEO Discusses Q3 2010 Results - Earnings Call Transcript

State Street Corp. CEO Discusses Q3 2010 Results - Earnings Call Transcript

State Street Corp, (

STT

)

Earnings Conference Call

October 19, 2010 09:30 am ET

Executives

Kelly McDonald – Senior Vice President of Investor Relations

Jay Hooley – President and Chief Executive Officer

Ed Resch – Executive Vice President and Chief Financial Officer

Analysts

Howard Chen – Credit Suisse

Glenn Schorr – Nomura Securities

Robert Lee – Keefe, Bruyette & Woods

Mike Mayo – CLSA

Nancy Bush – NAB Research

Brian Bedell – ISI Group

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John Stilmar – SunTrust Group

Andrew Marquardt – Evercore Partners

Presentation

Operator

Compare to:
Previous Statements by STT
» State Street Corporation Q1 2010 Earnings Call Transcript
» State Street Corporation Q4 2009 Earnings Call Transcript
» State Street Corporation Q3 2009 Earnings Call Transcript
» State Street Corporation Q2 2009 Earnings Call Transcript

Good morning and welcome to State Street Corporation’s third quarter call and webcast. Today’s discussion is being broadcast live on State Street’s website at

www.statestreet.com/stockholder

. This call is also being recorded for replay. State Street’s call is copyrighted. All rights are reserved. The call may not be recorded for rebroadcast or distribution in whole or in part without express written authorization from State Street, and the only authorized broadcast of this call is on State Street’s website.

At the end of today’s presentation, we’ll conduct a question-and-answer session. (Operator instructions). Now, I’d like to introduce Kelly McDonald, Senior Vice President for Investor Relations at State Street.

Kelly McDonald

Thank you. Before Jay Hooley, our President and Chief Executive Officer and Ed Resch, our Chief Financial Officer begin their remarks, I’d like to remind you that during this call we will be making forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in State Street's 2009 annual report on Form 10-K and its subsequent filings with the SEC.

We encourage you to review those filings including the sections on risk factors concerning any forward-looking statements we make today. Any such forward-looking statements speak only as of today, October 19, 2010 and the corporation does not undertake to revise such forward-looking statements to reflect events or changes after today.

I'd also like to remind you that you can find slide presentation regarding the corporation's investment portfolio as well as our third quarter earnings press release which includes reconciliations of non-GAAP measures referred to on this webcast in the investor relations portion of our website.

Now I’ll turn the call over to Jay.

Jay

Hooley

Thanks Kelly and good morning. Strength and servicing fee and good cost controls drove results of the third quarter. We achieved operating basis earnings per share of $0.86, which was an increase of 21% compared with $0.71 in the third quarter of last year, and down modestly from the very strong second quarter of this year. Based on our new wins and strong pipeline, we expect the momentum in service fee revenue to continue.

In asset management, we continue to experience growth and passes in income oriented ETF products as investors continue to remain conservative. Additionally, the impact of the Intesa and Mourant acquisitions, which closed last quarter, supported our strong revenue growth. I’ll make a few comments about our performance and I’ll ask Ed to provide a more detailed financial perspective and after that we’ll open the call to your questions.

From an operating basis, comparing the results of the third quarter with the third quarter of 2009, total revenue increased 8.4% and total expenses increased 3.1%. As a result, we achieved 530 basis points of positive operating leverage. Total revenue in the quarter declined less than 1% from the second quarter of 2010, which I think is a good achievement given the cyclical strength of the second quarter results and the weakness in the worldwide trading markets.

Our servicing fee revenue increased 19% from the third quarter of last year and was up 3% from the second quarter of this year, reflecting the impact of the acquisitions and the installations of last year’s large wins as well as new business wins of January.

As I said in the second quarter conference call, the large Morgan Stanley mandate is now fully included in the run rate for the third quarter. We converted the state of New Jersey in the third quarter and are just now converting the state of Ohio.

Year-to-date, as of September 3, 2010, we added 1.1 trillion of new servicing mandates. We’ve already installed about 286 billion of those and expect to install about 800 billion in the fourth quarter and into 2011. This pace of wins and installs gives us confidence in the strength of our servicing fee revenue. We’ve added new business pipelines. We have active business pipelines with particular strength outside of the US in our alternative investment servicing business. The acquisition of Intesa Sanpaolo Securities Services business and Mourant International Finance Administration are on track to meet our expectations for the year and contributed modestly to our financial results for the quarter, excluding the merger and acquisition integration costs.

We’re optimistic that our market-leading position in Italy will lead to cross-sell opportunities and new mandates from Italian clients. The revenue from our asset management business declined slightly both from last year’s third quarter and this year’s second quarter. This decline was due primarily to a continuous movement out of active strategies and into passive and ETF strategies. Although net new business at SSgA was slightly negative in the quarter, down 3 billion, flows into passive and ETFs were positive, offset by negative flows from cash, largely from our securities lending business. As expected, trading services revenue declined from a year ago quarter due to weak volumes in worldwide trading markets. The sequential quarterly decline in trading services revenue was principally due to the servicing strength in the second quarter. Demand has not returned to the securities finance markets.

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