What is the primary driver of State Street's revenue growth in Q1 2002?

State Street's revenue growth in Q1 2002 was primarily driven by an increase in servicing fees (up 6%) and net interest revenue (up 14%). This growth was bolstered by wider interest rate spreads and balance sheet expansion from client activities, as well as new business wins and securities lending revenue contributing to servicing fees.

How did market performance affect State Street's fee revenue?

Declines in average equity market valuations partially offset the growth in servicing and management fees. Many servicing contracts are priced based on the daily average values of assets under custody, and management fees are largely based on average month-end values of assets under management. The S&P 500 index declined 11% and the MSCI EAFE index declined 20% year-over-year, impacting these fee calculations.

What is the impact of the adoption of SFAS No. 142 on the reported results?

Effective January 1, 2002, State Street adopted SFAS No. 142, which eliminates the amortization of goodwill. This change positively impacted reported net income and earnings per share by removing the goodwill amortization expense, which was $5 million after-tax (or $0.01 per diluted share) in Q1 2001.

How is State Street managing its operating expenses?

State Street is focused on aligning expense growth with strategic priorities. While certain expenses like salaries and information systems increased due to new business and investments, the company has seen a reduction in transaction processing services and other operating expenses. They are also implementing staff reductions, with expected savings to offset associated costs by year-end.

STT/STT-PG 10-Q Quarterly Report Q1 FY2002

Summary

State Street Corporation (STT) reported solid first-quarter 2002 results, demonstrating revenue growth and a strengthened net income compared to the prior year. Total revenue increased by 5% to $996 million, driven by robust growth in servicing fees and net interest revenue, which more than offset a decline in foreign exchange trading revenue. Net income saw a significant rise of 47% to $178 million, translating to a diluted EPS of $0.54, up from $0.37 in the first quarter of 2001. This performance highlights the company's ability to expand its core services and benefit from favorable interest rate spreads, even amidst challenging market conditions and declining equity valuations impacting fee-based revenue drivers. The company maintained strong capital ratios, with Tier 1 risk-based capital for State Street Bank at 13.7% and for the Corporation at 14.6%, well above regulatory requirements. While assets under custody and management have grown, the decline in market valuations has had a partial offsetting effect on fee revenue. Management remains focused on expense control, despite necessary investments in information systems and employee benefits, aiming for sustainable earnings growth and a return on equity of 18%.

Key Highlights

1Diluted earnings per share (EPS) increased by 46% to $0.54 in Q1 2002, compared to $0.37 in Q1 2001.
2Total revenue rose by 5% to $996 million, driven by a 6% increase in servicing fees and a 14% increase in net interest revenue.
3Net income surged by 47% to $178 million, reflecting improved operational efficiency and revenue growth.
4Assets under custody reached $6.3 trillion, up from $5.8 trillion in the prior year, while assets under management grew to $808 billion from $703 billion.
5State Street maintained strong capital adequacy, with Tier 1 risk-based capital ratios significantly exceeding regulatory minimums.
6Foreign exchange trading revenue declined by 32% due to lower currency volatility, impacting overall fee revenue growth.
7The company adopted SFAS No. 142, eliminating goodwill amortization and positively impacting reported net income and EPS.

STATE STREET CORP Quarterly Report for Q1 Ended Mar 31, 2002

Summary

Key Highlights

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