State Street Reports Q3 Earnings Up 64%

STT revenue 3% higher to $2.31 billion on reduced expenses, servicing fees

State Street Corp. (STT) on Tuesday reported third-quarter 2010 earnings per common share of $1.08, an increase of 64% compared to $0.66 in the third quarter of 2009. Revenue in Q3 2010 was $2.31 billion, up 3% from $2.24 billion at this time last year.

The company, whose Q3 2010 results beat analysts’ expectations for earnings per share of $0.83, made its profits primarily by reducing expenses and increasing service fee revenues.

Expenses of $1.527 billion in the third quarter declined 12% from $1.733 billion in the third quarter of 2009. Servicing fees were up 19% to $989 million from $833 million in the third quarter of 2009.

STT stock after the earnings release was trading in a range of $39.58 to $41.31 per share versus the prior day’s close of $41.21.

State Street President and CEO Joseph L. Hooley credited the company’s servicing fees in the company’s overall results, noting that STT won $477 billion in assets to be serviced in the third quarter. He also acknowledged that management fees were off and that trading remains a challenge.

“Our overall results were driven by strength in our servicing fee revenue and our ability to maintain our focus on cost control,” Hooley said in a statement. “State Street Global Advisors continues to perform well although management fees

were down slightly, due primarily to the change in business mix as shown in assets under management.”

The integrations of the Intesa and Mourant businesses are progressing well, but the weak, low-volume trading environment “continues to be challenging for our trading services business,” he added.

“With the support of the two acquisitions, as well as strong year-to-date wins in servicing and growth in passive strategies and ETFs in asset management, we continue to expect that our operating-basis earnings per share, which exclude discount accretion, will be slightly above the adjusted operating-basis $3.32 per share recorded last year,” Hooley said.

Boston-based institutional money manager State Street, which handles accounting and recordkeeping for mutual funds and other large investment portfolios, saw investment management fees generated by State Street Global Advisors drop 3% to $213 million from $219 million year-ago quarter.

The decrease in management fees was attributable primarily to the mix of business reflected in assets under management, offset partially by increases in the average of month-end valuations in worldwide equity markets.

Trading services revenue, which includes foreign exchange trading revenue and brokerage and other fees, was $228 million for Q3 2010, a decrease of 15% from $269 million in the third quarter of 2009. Brokerage and other fees were up about 3% due primarily to an increase in electronic trading.

Securities finance revenue was $68 million in the quarter, down 35% from $105 million in Q3 2009 due primarily to compressed spreads and slightly lower volumes. Processing fees and other revenue was $71 million, up from $45 million in Q3 2009 due primarily to increased revenue from structured products.

Read about State Street’s Q2 2010 earnings at AdvisorOne.com.

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