2010 Q4 Earnings: State Street Profits Fall

EPS beats estimates by a penny but investors punish nonetheless

Despite operating earnings that came in at $0.87 per share, beating analyst estimates by a penny, State Street Corp. (STT) on Wednesday took a beating from investors who were unhappy that fourth quarter earnings were so low; its stock dropped 4.1% before coming back to a drop of 3.96% in midday trading.

Net income for the quarter totaled $83 million, or $0.16 per share, compared to $498 million, or $1 per share in the same 2009 period. Full-year earnings were $3.09 per share, compared with $3.46 for the prior year.

In its Q4 release, State Street attributed the performance for the quarter and for the year to “the impact of certain actions taken to accelerate growth and to provide greater capital flexibility.” Those actions, it said, caused a loss of $0.67 per share thanks to investment portfolio repositioning and a restructuring charge stemming from staffing reductions and consolidation of real estate.

In a statement, Joseph L. Hooley, State Street's chairman and chief executive officer, said, “During the quarter, we took significant actions that we expect to positively impact State Street's results in the coming years. First, we announced a multi-year plan to transform our operating model, including a comprehensive technology program, designed to increase efficiencies and position the Company for accelerated growth. Second, we repositioned our investment portfolio to provide greater flexibility for capital deployment in the future.”

CEO Cites Expected Increased Regulatory Costs

Commenting on near-term increases in regulatory costs and lower net interest revenue in 2011 because of the low interest-rate environment and the repositioning of the investment portfolio, Hooley said nonetheless, “... we are well positioned to take advantage of global growth opportunities and, as the economy normalizes, we remain committed to our long-term financial goals.”

He also indicated that the fourth quarter saw favorable growth in servicing and management fees, trading services revenue improvement, and positive operating leverage over Q4 2009 in the amount of 520 basis points.

Read about State Street’s Q3 earnings at AdvisorOne.com.

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

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