Will Legal Issues Further Elevate State Street's Expenses? - Analyst Blog

On Mar 11, 2015, we issued an updated research report on State Street CorporationSTT . Enhanced asset position continued to be a strength, while weak cost management remained a major near-term concern.

State Street remains well positioned for future organic growth on the back of its fundamental business activities, global exposure and broad array of innovative products and services. Moreover, the company's focus on activity managed accounts and strong market share in higher-margin products helps in earnings growth at a faster rate compared with its peers, over the long term.

Looking into the capital deployment activities, State Street intends to increase its quarterly dividend to 34 cents per share in the second quarter of 2015 after recently clearing the 2015 stress test. Also, a $1.8 billion new stock repurchase program (effective Apr 1) was recently announced by the company. These enhanced initiatives to return capital will help the company win back investors' confidence, which clouded by the rising litigations contributed to the 2% fall in the share price since the latest earnings release.

State Street is in talks with several governmental agencies and civil litigants relating to its indirect foreign exchange activities and intends to settle some of the possible claims. The company restated its fourth-quarter 2014 earnings, giving effect to $65 million additional legal accruals for the same.

Additionally, despite having cost saving programs in place, the company has been struggling to manage expenses prudently. With management anticipating upward pressure on regulatory compliance costs in 2015, we believe that it might take a while for State Street to cut costs and benefit from the expense-savings initiatives.

Over the past 30 days, analysts have extended mixed responses toward State Street's growth prospects. The Zacks Consensus Estimate for 2015 increased by a penny to $5.15 per share; while for 2016, the same declined by 1.2% to $5.86 per share.

Currently, State Street carries a Zacks Rank #3 (Hold).

Some better-ranked banks stocks include Northern Trust Corp. NTRS , Preferred Bank PFBC and Western Alliance Bancorp WAL . All these stocks sport a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

STATE ST CORP (STT): Free Stock Analysis Report

NORTHERN TRUST (NTRS): Free Stock Analysis Report

WESTERN ALLIANC (WAL): Free Stock Analysis Report

PREFERRED BANK (PFBC): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

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.

In This Story


Other Topics


Latest Markets Videos


Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at

Learn More