What was the primary driver of State Street's revenue growth in Q2 2006?

State Street's revenue growth in the second quarter of 2006 was primarily driven by a significant increase in fee revenue, which grew 20% year-over-year. This was particularly strong in management fees and trading services, with foreign exchange trading revenue showing substantial gains. Net interest revenue also contributed positively, increasing by 21% due to a more favorable deposit mix and balance sheet growth.

How did the tax-related charges impact earnings in Q2 2006?

In the second quarter of 2006, State Street reported diluted earnings per share of $0.68, which included $0.25 per share in tax-related charges. These charges were primarily due to the Tax Increase Prevention and Reconciliation Act and an additional provision for potential IRS issues with leveraged leases. Excluding these charges, diluted earnings per share from continuing operations were $0.93, representing a 41% increase compared to the prior year's second quarter.

What is the company's outlook and what challenges does it anticipate for the rest of 2006?

State Street's performance in the first half of 2006 suggests they may achieve results at the high end of their 2006 financial goals. However, they anticipate challenges including seasonally reduced transaction volumes in the third quarter, a slowdown in capital markets activity towards the end of Q2, the impact of the short-term interest-rate environment, and the ongoing challenge of balancing expense growth with strong revenue growth.

How are State Street's regulatory capital ratios positioned?

State Street maintained strong regulatory capital ratios as of June 30, 2006. The Tier 1 risk-based capital ratio stood at 11.0% and the Total risk-based capital ratio was 13.1%. Both of these figures comfortably exceeded the regulatory minimums and well-capitalized thresholds, indicating a robust capital position to support its operations and regulatory requirements.

STT/STT-PG 10-Q Quarterly Report Q2 FY2006

Summary

State Street Corporation reported strong financial results for the second quarter and the first half of 2006, demonstrating significant revenue growth driven by its core businesses. Total revenue increased by 21% in the quarter and 19% year-to-date, outpacing operating expense growth and resulting in positive operating leverage. This performance was fueled by robust fee revenue, up 20% and 18% respectively, with notable strength in management fees and trading services, particularly foreign exchange trading. Net interest revenue also saw a healthy increase of 21% and 23% due to a more favorable deposit mix and balance sheet growth. Despite these positive trends, investors should note the impact of significant tax-related charges in the second quarter of 2006, which affected diluted earnings per share. Specifically, charges related to the Tax Increase Prevention and Reconciliation Act and a provision for potential IRS issues with leveraged leases reduced EPS by $0.25. Excluding these charges, EPS from continuing operations showed a substantial 41% increase year-over-year for the quarter. The company is on track to meet its 2006 financial goals, though it acknowledges potential challenges from interest rate environments and expense management for the remainder of the year.

Key Highlights

1Total revenue increased by 21% year-over-year to $1.65 billion for the quarter ended June 30, 2006, and by 19% to $3.17 billion for the first six months.
2Fee revenue grew by 20% to $1.38 billion for the quarter and 18% to $2.64 billion year-to-date, with strong contributions from management and trading services.
3Net interest revenue rose by 21% to $262 million for the quarter and 23% to $528 million year-to-date, benefiting from a better deposit mix and balance sheet expansion.
4Diluted EPS for the quarter was $0.68, which included $0.25 per share in tax-related charges. Excluding these charges, EPS from continuing operations increased by 41% to $0.93.
5Assets under custody reached $10.86 trillion, up 7% from year-end 2005, and assets under management grew to $1.53 trillion, up 6% from year-end 2005.
6Operating expenses increased by 14% to $1.18 billion for the quarter and $2.27 billion year-to-date, with higher salaries and benefits being a primary driver.
7The company maintained strong capital adequacy ratios, with Tier 1 risk-based capital ratio at 11.0% and Total risk-based capital ratio at 13.1% as of June 30, 2006, both exceeding regulatory requirements.

STATE STREET CORP Quarterly Report for Q2 Ended Jun 30, 2006

Summary

Key Highlights

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