By Daniel Huang And Angela Chen
State Street Corp. said strength in its trading-services and
foreign-exchange segments spurred earnings growth in the fourth
quarter, but investors focused on a tougher-than-expected outlook
for 2015.
"We expect to be pressured from the low-interest environment,"
said Chief Financial Officer Michael Bell in a conference call
Friday, noting that net interest revenue is likely to decline on an
operating basis in 2015. The bank will also be pressured to deploy
capital in order "to meet new liquidity requirements," Mr. Bell
said.
Shares of State Street fell about 6% in morning trading.
"It was a pretty mixed quarter," wrote Evercore ISI analyst
Glenn Schorr, who also noted that a strong dollar hurt the firm's
fees and that State Street continues to digest "higher regulatory
costs."
The stronger U.S. currency negatively impacted servicing fees by
roughly $15 million, but was offset by net new business and more
transactions, according to Mr. Bell. Management fees also took a
roughly $5 million hit due to factors including currency moves, and
lower performance fees, Mr. Bell said.
The bank also recorded after-tax charges totaling $67 million,
or 16 cents per share, in the fourth quarter for legal accrual
related to indirect foreign exchange matters and the completion of
an operations and technology transformation.
Currency market fluctuations are expected to have roughly a $200
million negative impact on revenue in 2015, though part of this
should be offset by lower expenses, the company said.
Investors Friday focused more on the guidance for this year than
the past quarter's results, said Jim Shanahan, a senior equity
analyst at Edward Jones. "There's no sense looking through the rear
view," he said.
Overall, the Boston-based bank reported earnings of $525
million, down from $545 million a year ago. On a per-share basis,
however, earnings rose to $1.24 from $1.22 a year earlier.
On an operating basis, profit rose to $1.37 a share versus $1.15
a share a year earlier.
"Despite the low-interest-rate environment in 2014, our revenue
experienced solid growth compared with 2013 from both asset
servicing and asset management," said Chief Executive Joseph L.
Hooley. State Street added some $400 billion of new asset-servicing
mandates last quarter and net new assets to be managed were $7
billion.
Revenue improved 7.8% to $2.72 billion, from $2.53 billion a
year ago. Analysts polled by Thomson Reuters estimated an operating
profit of $1.26 a share and revenue of $2.67 billion.
The firm said it had $2.74 trillion in assets under management
as of Dec. 31, about 0.2% less than it had during the same period a
year ago. Assets under custody and administration rose to $28.19
trillion from $27.43 trillion.
Servicing fees grew 5.6% to $1.3 billion due to new business and
stronger U.S. equity markets, though partially offset by the
stronger dollar. Management fees grew 3.1% to $299 million, largely
due to the same reasons.
In its trading-services business, revenue jumped 24%. Revenue
climbed 34% in foreign-exchange trading due to higher volatility
and volumes.
Rival Northern Trust Corp. earlier this week reported earnings
that beat expectations, while Bank of New York Mellon Corp. Corp.
on Friday posted disappointing results amid weakness in its
fixed-income segment.
Write to Daniel Huang at daniel.huang3@wsj.com and Angela Chen
at angela.chen@dowjones.com
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