What is the impact of the Deutsche Bank GSS acquisition on State Street's financial results?

The acquisition of Deutsche Bank's Global Securities Services (GSS) business, completed in January 2003, significantly contributed to State Street's revenue growth in Q3 2003, adding $163 million. However, it also led to increased operating expenses, including $26 million in merger and integration costs and $53 million in salaries and benefits related to the acquired employees.

How are State Street's fee revenues performing?

Fee revenues showed strong performance, increasing by 32% to $928 million in Q3 2003 compared to $702 million in Q3 2002. Key drivers included a 30% rise in servicing fees, a 21% increase in management fees, and a substantial 51% surge in processing fees and other revenue, partly due to the GSS acquisition.

What is the outlook for net interest revenue?

Net interest revenue declined by 10% to $203 million in Q3 2003 from $224 million in Q3 2002. This was attributed to lower interest rates and a reduced net interest margin, which fell from 1.36% to 1.17%. Management expects continued pressure on net interest revenue due to the prevailing interest rate environment.

Are operating expenses under control despite the recent acquisition and restructuring efforts?

Reported operating expenses increased by 20% to $821 million in Q3 2003. However, on a "baseline" basis (excluding GSS contribution and one-time costs), operating expenses actually decreased by 3% year-over-year, indicating that State Street's cost-reduction initiatives are effective in managing core operational expenses.

STT/STT-PG 10-Q Quarterly Report Q3 FY2003

Summary

State Street Corporation's (STT) Q3 2003 report shows a solid performance driven by strong fee revenue growth, particularly from its Investment Servicing segment. Total revenue increased to $1.126 billion from $956 million in the prior year's quarter, reflecting the integration of the acquired Deutsche Bank Global Securities Services (GSS) business. While net interest revenue saw a decline due to lower interest rates, fee revenue, comprising servicing, management, and foreign exchange trading, demonstrated significant year-over-year improvements. Operating expenses increased, largely due to merger and integration costs associated with the GSS acquisition and restructuring charges related to efficiency programs. However, on a "baseline" adjusted basis, excluding these one-time items and the GSS contribution, operating expenses decreased, highlighting effective cost management. The company's capital position remains strong, with regulatory ratios well above minimum requirements. Overall, STT demonstrated resilience and strategic growth in a dynamic financial environment.

Key Highlights

1Total revenue for Q3 2003 rose to $1.126 billion, up from $956 million in Q3 2002, driven by strong fee revenue.
2Fee revenue increased by 32% year-over-year to $928 million, with significant contributions from servicing fees (+30%) and processing fees and other (+51%).
3The acquisition of Deutsche Bank's Global Securities Services (GSS) business contributed $163 million in revenue during the quarter, integrating well into State Street's operations.
4Net interest revenue decreased by 10% to $203 million, reflecting lower interest rates and narrower net interest margin.
5Operating expenses increased by 20% to $821 million, primarily due to $26 million in merger and integration costs and $3 million in restructuring charges.
6Despite increased expenses, "baseline" operating expenses (excluding one-time items and GSS contribution) decreased by 3% compared to the prior year.
7Diluted earnings per share increased to $0.60 from $0.56 in the prior year, with "baseline" diluted EPS reaching $0.65.

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2003

Summary

Key Highlights

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