Fitch: Higher Markets Support State Street's 1Q13 Earnings
CHICAGO -- April 19, 2013
State Street (STT) reported net income of $455 million in 1Q13 modestly down
from $468 million in 4Q12, according to Fitch Ratings. This quarter's results
equate to a 9.1% return on average equity (ROAE), which from a credit
perspective Fitch continues to view as satisfactory and somewhat consistent
with peer institutions, but results remain below STT's historical averages.
STT's total revenue was down slightly compared to the sequential quarter, as
improvements in servicing and management fees driven in large part by higher
markets, as well as a significant increase in foreign exchange trading was
offset by continued decline in net interest revenue amid the protracted low
interest rate environment. STT's net interest margin (NIM) declined to 1.31%
in 1Q13 from 1.36% in the prior quarter as STT experience a greater than
expected inflow of deposits.
Expenses increased 5.7% from the sequential quarter due primarily to equity
incentive compensation expense for retirement eligible employees and higher
payroll taxes. Despite this increase, Fitch STT continues to be focused on
managing expenses, particularly as the revenue environment noted above
continues to remain challenging.
STT continues to grow its strong franchise in asset custody and in asset
management. The bank's total assets under custody and administration (AUCA)
now amount to $25.4 trillion up 4.3% from YE2012, and total assets under
management (AUM) amount to $2.18 trillion, also up 4.3% from YE2012. Each of
these benefited from a mix of new business wins and higher equity markets on
the quarter. In addition, STT's exchange traded fund (ETF) business continues
to exhibit strong growth.
STT's capital ratios remain strong, though they did modestly decline from the
prior quarter.. The company's Tier 1 common ratio at 1Q13 was strong at 16.1%,
though down from 17.1% at YE2012. This ratio continues to compare favorably to
Under current Basel 3 proposals STT estimates that its Tier 1 common ratio
would have been 10.6%, just down modestly from 10.8% at YE2012, and STT
further estimates that with additional securities run-off to optimize its
risk-weighted assets, STT's pro forma Basel 3 Tier 1 common ratio would have
been 11.4%. STT's Basel 3 ratios also compare favorably with other peer
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Justin Fuller, CFA
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
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