State Street Corporation
) has decided to take up few cost-cutting measures to improve
profitability since it is expecting pressure on revenue growth in
the future. This was one of the many announcements made by CEO Jay
Hooley at the
) investor Conference on September 11, 2012.
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Revenue growth is expected to be limited mainly due to the poor
performances of the capital markets across the globe. For that
reason, management has taken up such measures vigorously in order
to perk up profit margins.
Further, the company expects to drive the organic growth to a
higher level through innovative activities such as increasing the
Exchange Traded Fund offerings, enhancing investment managerial
operations outsourcing, boosting derivatives clearing and
collateral initiatives as well as creating new data and
To control the escalating expenses, management is striving hard to
timely complete its Information Technology Transformation program
by 2014. This program is designed to rationalize the company's
technology infrastructure and generate around $600 million in
pre-tax savings by 2015. Further, management expects to trim its
workforce in the IT sector by eliminating employees who do not work
directly with the clients. Moreover, it remains focused on
controlling other expenses.
The various initiatives announced by the State Street management
have the potential to drive its overall business performance
upwards and boost investors' confidence in the stock. However,
despite these efforts, it would be difficult for the company to
fully negate the effects of low interest rate environment and the
stringent regulatory landscape.
State Street currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we
also maintain a long-term Neutral recommendation on the stock.