Credit: Shutterstock photoA rise in expenses, along with a strong U.S. dollar, led State Street Corp. 's STT third-quarter 2015 operating earnings of $1.16 per share, which lagged the Zacks Consensus Estimate of $1.25. Further, the reported figure was down 14% year over year.
State Street Corporation - Earnings Surprise | FindTheBest
Higher operating expenses and a decline in net interest income were mainly responsible for the lower-than-expected results. Notably, the continued low interest rate environment and a strengthening U.S. dollar adversely impacted operating revenues. However, a marginal improvement in fee income acted as a tailwind.
After considering certain non-recurring items, net income available to common shareholders came in at $543 million or $1.32 per share compared with $542 million or $1.26 per share in the year-ago quarter.
Performance in Detail
Revenues, on GAAP basis, totaled $2.62 billion, up 1% year over year. The top line came in lower than the Zacks Consensus Estimate of $2.71 billion.
Net interest revenue, on an operating basis, fell 9% year over year to $529 million. The decline was mainly due to lower yields from interest earning assets and the impact of a stronger U.S. dollar. Also, net interest margin was 0.95%, down 11 basis points year over year.
Fee revenues came in at $2.12 billion, up 1% year over year. All components of fee income showed improvement except servicing fees and management fees.
On an operating basis, non-interest expenses climbed 4% year over year to $1.88 billion. All components of operating expenses, except occupancy cost, increased.
As of Sep 30, 2015, total assets under custody and administration were $27.3 trillion, down 4% year over year. Moreover, assets under management were $2.2 trillion, down 9% year over year.
State Street's capital and profitability ratios displayed strength in the quarter. Under Basel III (Advanced approach), the estimated Tier 1 common ratio was 12.1% as of Sep 30, 2015.
Return on common equity (on an operating basis) came in at 10.0% compared with 11.4% in the year-ago quarter.
Share Repurchases
During the reported quarter, State Street repurchased shares worth $350 million at an average price of $72.43 per share. This was part of the company's buyback plan, which authorized the purchase of up to $1.8 billion of stock through the second quarter of 2016.
New Strategic Plans
State Street announced a multi-year plan to accelerate the next phase of its transformation program aimed at generating roughly $500 million in annualized savings, once fully implemented.
Moreover, State Street, in order to better calibrate its expenses to the current environment, plans to reduce nearly 600 positions on a gross basis. The plan, expected to be completed by next year-end, will lead to annual savings of $50 million.
Our Viewpoint
We expect State Street's restructuring programs, along with stable core servicing and investment management franchises, to help offset its top-line weakness. At the same time, enhanced capital deployment initiatives will reinforce the company's priority commitment to enhance its shareholders' value.
However, a low interest rate environment, mounting expenses and a persistent fall in net interest revenue are anticipated to drag State Street's top line in the quarters ahead.
Currently, State Street carries a Zacks Rank #4 (Sell).
Performance of Other Major Regional Banks
BB&T Corp.'s BBT third-quarter 2015 earnings came in at 64 cents per share, down from the prior-year figure of 70 cents. The Zacks Consensus Estimate was pegged at 66 cents per share. Results were attributable to a rise in revenues.
SunTrust Banks, Inc.'s STI third-quarter 2015 earnings came in at $1.00. The results included certain non-recurring items. The Zacks Consensus Estimate was pegged at 83 cents. Results were driven by higher non-interest income, lower provision for credit losses and an almost stable expense level.
The Bank of New York Mellon Corp.'s BK third-quarter 2015 earnings per share of 74 cents comfortably surpassed the Zacks Consensus Estimate of 71 cents, driven by a dip in costs and a slight improvement in top line.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
