State Street Corp.
) reported first-quarter operating earnings of 99 cents per
share, which missed the Zacks Consensus Estimate by a penny due
to increased non-interest expenses and lower interest revenues.
However, the reported figure was up 3% from the prior-year
quarter figure of 96 cents.
BANK OF NY MELL (BK): Free Stock Analysis
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Our proven model predicted that State Street may not post an
earnings beat as it did not have the right combination of two key
components - positive
and a Zacks Rank of #3 (Hold) or higher rank. While State Street
did have a Zacks Rank #3, its Earnings ESP was 0.00%.
Lower-than-expected results were mainly due to a fall in net
interest income and higher-than-expected operating expenses,
partly offset by increased fee income. Further, deteriorating
profitability ratios was a dampener. However, improvement in
asset position and capital ratios were the positives.
After considering certain non-recurring items, net income
applicable to common shareholders was $356 million, down 22% year
Performance in Detail
Revenues on an operating basis came in at $2.56 billion, up 4%
from the prior-year quarter. Further, it beat the Zacks Consensus
Estimate of $2.53 billion.
Net interest revenue on an operating basis fell 1% year over year
to $572 million. The fall was mainly due to lower yields on
earning assets, partly offset by lower interest expense.
Likewise, net interest margin was 1.24% in the quarter, down 7
basis points year over year.
Fee revenues came in at $2.0 billion, increasing 5% from the
prior-year quarter. The rise was attributable to increase in
servicing fees, management fees, processing and other revenues as
well as securities finance fees, partially offset by lower total
trading services revenues.
On an operating basis, non-interest expenses increased 6% from
the year-ago quarter to $1.91 billion. All the operating expense
components increased except for occupancy costs.
Total assets under custody and administration were $27.48
trillion as of Mar 31, 2014, up 8% year over year. Moreover,
assets under management were $2.38 trillion, up 9% from the
Capital and Profitability Ratios
State Street's capital ratios improved while profitability ratio
deteriorated. As of Mar 31, 2014, Tier 1 capital ratio was 18.2%,
up from 18.0% as of Mar 31, 2013. Likewise, Tier 1 common to
risk-weighted assets increased to 16.4% as of Mar 31, 2014 from
16.0% as of Mar 31, 2013.
Further, under Basel III final rule (Advanced approach), the
estimated Tier 1 common ratio was 13.2% as of Mar 31, 2014, up
from 10.6% as of Mar 31, 2013.
Return on common equity (on an operating basis) came in at 8.8%,
down from 8.9% in the year-ago quarter.
Capital Deployment Activities
During the reported quarter, State Street repurchased 6.1 million
shares for $420 million. This was part of the company's buyback
plan authorizing purchase of up to $2.1 billion worth of stock
through Mar 13, 2014.
Further, in March, State Street received the Federal Reserve's
approval for its 2014 capital plan that included share
repurchases up to $1.7 billion between the second quarter of 2014
and the first quarter of 2015. Additionally, the company intends
to raise its quarterly cash dividend by more than 15% to 30 cents
We anticipate State Street's restructuring programs, along with
stable core servicing and investment management franchises, to
help offset its financial weakness. Moreover, enhanced capital
deployment initiatives reinforce the company's priority to
enhance shareholders' value. However, a low interest rate
environment, increased expenses and a persistent fall in net
interest revenue are expected to drag State Street's top line in
the quarters ahead.
Performance of Other Major Regional Banks
Among other major regional banks,
SunTrust Banks, Inc.
The Bank of New York Mellon Corp.
) surpassed the Zacks Consensus Estimate. While SunTrust
benefited from prudent expense management and lower provisions,
KeyCorp's results were driven by lower expenses, a decline in
provision for loan and lease losses, and higher fee income.
For BNY Mellon, results were aided by growth in net interest
revenue and fee income, along with decreased operating expenses.
However, lower benefits from provisions acted as a dampener.