By Chelsey Dulaney And Daniel Huang
State Street Corp. on Friday reported results for its second
quarter that met expectations despite a low appetite for risk,
while announcing yet another addition to its legal reserves for
currency-related claims.
The trust bank reported earnings of $393 million, down from $602
million a year earlier. On a per-share basis, earnings fell to 94
cents from $1.38 a share.
On an operating basis, which excludes the legal accrual and
other items, per-share earnings fell to $1.37 a share from $1.39 a
share a year earlier. Revenue grew 2.1% to $2.73 billion from $2.68
billion.
Analysts polled by Thomson Reuters estimated an operating profit
of $1.37 a share and revenue of $2.73 billion.
Shares of State Street fell 5% to $75.70 in late morning
trade.
In the latest quarter, State Street's results were weighed down
by low interest rates and big market disruptions. Net interest
revenue fell 4.6% to $535 million, pressured by low interest
rates.
"Toward the end of the second quarter of 2015 we saw a number of
significant market disruptions, including the possibility of Greece
exiting the eurozone and elevated equity market volatility in
China, all of which drove markets down in June and reduced risk
appetite," Chief Executive Joseph Hooley said.
State Street said it booked $156 million in charges to increase
its legal accrual related to foreign exchange, after making a
similar addition in the first quarter.
The trust bank has reached an agreement on the financial aspects
of a deal with counterparties and is working through the terms and
agreements, said Mr. Hooley on a conference call with analysts. "We
expect to reach a conclusion shortly," he said.
Assets under custody and administration edged up 0.9% to $28.7
trillion while assets under management fell 4.3% to $2.37
trillion.
In State Street's trading-services business, revenue grew 8.1%
to $281 million, driven by a 16% jump in foreign-exchange
trading.
Monetary policies abroad and diverging interest-rate
expectations for the U.S. relative to most other economies have
helped drive up foreign-exchange trading volume for the trust bank
recently.
State Street noted that though the strengthening of the U.S.
dollar reduced its fee revenue outside of the U.S., parallel
reductions on the expense side helped mitigate the impact to the
bottom line.
Total fee revenue edged up 3.7% to $2.18 billion in the
quarter.
Total expenses increased to $2.1 billion from $1.85 billion a
year ago, driven largely by regulatory compliance costs. The
company expects to replace consultants with full-time staff in the
year ahead which should help bring costs down, said Chief Financial
Officer Michael Bell in a conference call with analysts.
In June, State Street disclosed that it could face a civil
enforcement action from the U.S. Securities and Exchange
Commission, accusing the trust bank of violating a securities law
tied to its use of consultants.
That came after State Street warned in May that it may be
required by a written agreement to improve its compliance
procedures after deficiencies were found related to the Bank
Secrecy Act, anti-money-laundering regulations and U.S. economic
sanctions regulations.
Rival Bank of New York Mellon Corp. reported higher earnings
earlier this week on stronger-than-expected revenue.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Daniel
Huang at dan.huang@wsj.com
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