State Street Reports Revenue Rise in Most Business Lines

  • Second-quarter EPS of $1.24 beats consensus estimate of $1.19.
  • Operating revenue of $2.580 billion beats consensus estimate of $2.535 billion.
  • Revenue up 4.9% year-over-year
  • Assets under custody grow 1% sequentially but 15% year-over-year.
  • Assets under management down 1% sequentially but up 12.5% year-over-year.

NEW YORK ( TheStreet) -- State Street ( STT) of Boston on Friday reported sequential and year-over-year increases in servicing and asset management fees, with revenue rising in all business lines except for brokerage.

The custody bank and asset manager reported second-quarter net income available to common shareholders of $571 million, or $1.24 a share, increasing from $455 million, or 98 cents a share, in the first quarter, and $480 million, or 98 cents a share, during the second quarter of 2012.

State Street's second-quarter operating revenue totaled $2.580 billion, increasing from $2.470 billion the previous quarter and $2.459 billion a year earlier.

The results came in ahead of the consensus estimates among analysts polled by Thomson Reuters for first-quarter EPS of $1.19 on revenue of $2.535 billion.

Servicing fee revenue was up 2% sequentially and 11% year-over-year to $1.201 billion during the first quarter, as assets under custody grew to 1% from the first quarter and 15% year-over-year, to $25.742 trillion as of June 30.

Management fee income totaled $277 million in the second quarter, increasing 5% from the previous quarter and 13% year-over-year. Assets under management increased 12.5% year-over-year to $2.146 trillion as of June 30, although they were down slightly from the previous quarter.

Trading services revenue also grew, to $296 million during the second quarter from $281 million in the first quarter and $255 million in the second quarter of 2012. Within the trading services group, brokerage income declined to $125 million during the second quarter from $135 million the previous quarter and $126 million a year earlier.

Brokerage was the only business area showing a sequential revenue decline.

State Street's net interest revenue during the second quarter was $582 million, increasing from $577 million during the first quarter, but declining from $629 million during the second quarter of 2012, as the net interest margin was flat sequentially at 1.31%, but down from 1.54% a year earlier.

State Street CEO Joseph Hooley said in the company's earnings release that the revenue growth was "driven by new business and improved equity markets," adding that "Seasonal factors and increased market volatility benefited our securities finance and foreign exchange businesses." Hooley also said "we achieved positive operating leverage compared to both the first quarter of 2013 and the second quarter of 2012."

The company estimated that its Tier 1 common equity ratio under the Federal Reserve's final rules to implement Basel III was 10.9% as of June 30, well above State Street's fully-phased in minimum requirement of 8.0%, years ahead of the January 2019 deadline.

State Street's shares closed at $70.10 Thursday, returning 50% year-to-date, following a 19% return during 2012. The shares trade for 13.4 times the consensus 2014 EPS estimate of $5.22. The 2013 EPS estimate is $4.54.

Based on the 26-cent quarterly payout, the shares have a dividend yield of 1.84%.

State Street in March was approved by the Federal Reserve to buy back up to $2.1 billion in common shares through the first quarter of 2014. The company's second-quarter share repurchases totaled $560 million.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.