What were the key drivers of State Street's revenue growth in 2006?

State Street's revenue growth was primarily driven by increases in servicing fees (up 10%) and management fees (up 26%), which together accounted for a significant portion of the revenue increase. Trading services revenue also saw a substantial jump of 24%, and securities finance revenue grew by 17%. Growth in these areas was fueled by net new business from existing and new customers, higher average equity market valuations, increased customer transaction volumes, and the strategic introduction of quantitative active products by State Street Global Advisors (SSgA).

How did State Street's global expansion efforts progress in 2006?

State Street made substantial progress in its global expansion strategy, with non-U.S. revenue increasing to approximately 43% of consolidated total revenue, up from 39% in 2005. The company aims to eventually generate 50% of its revenue from outside the United States. This growth was supported by employees located outside the U.S., which comprised approximately 40% of the total workforce, and business wins across key international markets.

What is the significance of the announced acquisitions of Investors Financial Services Corp. and Currenex, Inc. for State Street?

The announced acquisitions of Investors Financial Services Corp. and Currenex, Inc. are strategic moves to enhance State Street's market leadership and expand its service capabilities. The acquisition of Investors Financial is expected to strengthen its position in fund accounting, offshore fund servicing, and hedge fund administration, while also providing significant cross-sell opportunities. The Currenex acquisition aims to accelerate State Street's participation in the electronic foreign exchange trading market. These acquisitions are expected to drive significant new revenue and improve market share in high-growth areas.

How did State Street manage its expenses and achieve operating leverage in 2006?

State Street's total operating expenses increased by 12% in 2006, a rate lower than the 15% growth in total revenue, resulting in positive operating leverage. The increase in expenses was mainly due to higher incentive compensation reflecting improved company performance and increased headcount to support new business, particularly internationally. The company emphasized balancing expense management with revenue growth to achieve this operational efficiency.

STT/STT-PG 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 20, 2007. Cited figures are marked; the original filing is the authoritative source.

State Street Corporation's (STT) 2006 10-K filing highlights a strong financial performance, characterized by consistent revenue growth, effective expense management, and expanding global operations.

The company reported double-digit revenue growth across most categories, driven by increases in servicing and management fees, supported by record levels of assets under custody and management. State Street Global Advisors (SSgA) saw increased contributions to overall results, and the company made significant progress towards its goal of generating 50%^a of revenue from non-U.S. operations, reaching 43% by year-end. The company also announced key acquisitions in early 2007, Investors Financial Services Corp. and Currenex, Inc., aimed at further strengthening its market position and expanding its service offerings.

Financial highlights include a 15% increase in total revenue and a 16% rise in income from continuing operations, resulting in diluted earnings per share of $3.26^b. The company also achieved positive operating leverage for the year. The outlook for 2007, factoring in the proposed acquisitions, projected revenue growth between 16-18% and earnings per share growth between 8-10%.

02—Key points

Key Highlights

State Street reported a 15% increase in total revenue year-over-year, reaching $6.31 billion, driven by strong performance in servicing, management, and trading fees.
Income from continuing operations grew by 16% to $1.10 billion, with diluted earnings per share rising to $3.26.
Assets under custody and assets under management reached record levels, with assets under custody at $11.85 trillion and assets under management at $1.75 trillion.
The company achieved positive operating leverage, with total revenue growth exceeding total operating expense growth.
Non-U.S. revenue accounted for approximately 43% of total revenue, up from 39% in the prior year, indicating successful global expansion.
State Street announced definitive agreements to acquire Investors Financial Services Corp. and Currenex, Inc., signaling strategic growth initiatives.
State Street Global Advisors (SSgA) increased its contribution to revenue and pre-tax income, with assets under management growing by 21% to $1.75 trillion.

03—Questions

Frequently Asked Questions

What were the key drivers of State Street's revenue growth in 2006?
State Street's revenue growth was primarily driven by increases in servicing fees (up 10%) and management fees (up 26%), which together accounted for a significant portion of the revenue increase. Trading services revenue also saw a substantial jump of 24%, and securities finance revenue grew by 17%. Growth in these areas was fueled by net new business from existing and new customers, higher average equity market valuations, increased customer transaction volumes, and the strategic introduction of quantitative active products by State Street Global Advisors (SSgA).
How did State Street's global expansion efforts progress in 2006?
State Street made substantial progress in its global expansion strategy, with non-U.S. revenue increasing to approximately 43% of consolidated total revenue, up from 39% in 2005. The company aims to eventually generate 50% of its revenue from outside the United States. This growth was supported by employees located outside the U.S., which comprised approximately 40% of the total workforce, and business wins across key international markets.
What is the significance of the announced acquisitions of Investors Financial Services Corp. and Currenex, Inc. for State Street?
The announced acquisitions of Investors Financial Services Corp. and Currenex, Inc. are strategic moves to enhance State Street's market leadership and expand its service capabilities. The acquisition of Investors Financial is expected to strengthen its position in fund accounting, offshore fund servicing, and hedge fund administration, while also providing significant cross-sell opportunities. The Currenex acquisition aims to accelerate State Street's participation in the electronic foreign exchange trading market. These acquisitions are expected to drive significant new revenue and improve market share in high-growth areas.
How did State Street manage its expenses and achieve operating leverage in 2006?
State Street's total operating expenses increased by 12% in 2006, a rate lower than the 15% growth in total revenue, resulting in positive operating leverage. The increase in expenses was mainly due to higher incentive compensation reflecting improved company performance and increased headcount to support new business, particularly internationally. The company emphasized balancing expense management with revenue growth to achieve this operational efficiency.

04—Continue

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