What were the main drivers of revenue growth in the third quarter of 2004?

Revenue growth was primarily driven by increases in servicing fees (up 12%) and management fees (up 11%). While total fee revenue increased by 4%, this was partially offset by declines in market-sensitive revenues such as securities lending and foreign exchange trading.

How is State Street managing expenses in light of revenue pressures in certain segments?

State Street is implementing steps to align expenses with revenue. This includes reorganizing operating groups, modifying incentive compensation plans, and focusing on balance sheet management. The company also announced plans to eliminate approximately 425 positions, expecting annualized savings of $50 million.

What is the company's outlook based on its revised financial goals?

State Street has set revised financial goals including annual growth in operating earnings per share of 10-15%, operating revenue growth of 8-12%, and an operating return on stockholders' equity of 14-17%. For 2005, the company expects operating results to be at the lower end of the range for operating revenue and earnings per share goals.

STT/STT-PG 10-Q Quarterly Report Q3 FY2004

Q: Why did net income and earnings per share decrease year-over-year?

Net income and earnings per share decreased due to higher operating expenses, particularly an increase in salaries and employee benefits, and ongoing merger and integration costs related to the Deutsche Bank GSS acquisition. Although total revenue increased, the rise in expenses outpaced revenue growth in the current quarter.

Summary

State Street Corporation (STT) reported its third-quarter 2004 results, showcasing a robust increase in total revenue, driven primarily by strong performance in its Investment Servicing segment. While fee revenue saw a healthy rise, driven by servicing and management fees, market-sensitive revenues like securities lending and foreign exchange trading experienced declines due to market activity. Net income for the quarter was $177 million, or $0.52 per diluted share, a decrease compared to the prior year's $202 million, or $0.60 per diluted share. This was influenced by higher operating expenses, particularly in salaries and employee benefits, and ongoing merger and integration costs related to the Deutsche Bank GSS acquisition. The company is actively managing expenses to align with revenue trends and has announced revised financial goals, including annual growth targets for operating earnings per share, revenue, and return on equity. Financially, State Street's total assets grew significantly to $100.5 billion by the end of the third quarter, supported by substantial increases in deposits and interest-bearing deposits with banks. The company's capital position remains strong, with Tier 1 risk-based capital ratios well above regulatory minimums. Despite market pressures affecting certain revenue streams, State Street demonstrated resilience through strategic expense management and a focus on its core Investment Servicing business, which continues to be the primary driver of its financial performance.

Key Highlights

1Total revenue for Q3 2004 increased by 4% to $1.174 billion compared to $1.126 billion in Q3 2003.
2Net income for Q3 2004 was $177 million, or $0.52 per diluted share, a decrease from $202 million, or $0.60 per diluted share, in Q3 2003.
3Total operating expenses increased by 10% to $906 million in Q3 2004 from $821 million in Q3 2003, primarily due to higher salaries and employee benefits.
4Investment Servicing fee revenue grew by 12% to $568 million, while Investment Management fee revenue increased by 11% to $156 million.
5Market-driven revenues, including securities lending and foreign exchange trading, saw declines of 21% and 26% respectively, due to market conditions.
6Total assets grew to $100.5 billion as of September 30, 2004, up from $87.5 billion as of December 31, 2003.
7The company's capital ratios remain strong, with Tier 1 risk-based capital ratio at 13.3% for the corporation and 11.5% for State Street Bank as of September 30, 2004.

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2004

Summary

Key Highlights

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