10-QPeriod: Q3 FY2012

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 2, 2012For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported a mixed financial performance for the third quarter of 2012. Total revenue saw a slight decrease of 3% year-over-year, primarily driven by a decline in fee revenue, although this was partially offset by an increase in net interest revenue and gains from investment securities. The company benefited significantly from a $362 million claim resolution related to the 2008 Lehman Brothers bankruptcy, which boosted net income by 21% and contributed to a substantial reduction in total expenses. Despite revenue challenges, particularly in trading services, State Street continued to manage its business through a significant IT transformation program and strategic acquisitions, such as the purchase of Goldman Sachs Administration Services (GSAS). The company also maintained strong capital ratios and returned capital to shareholders through dividends and share repurchases.

Financial Highlights

36 data points
Beta

Revenue

$2.36B

Net Income

$674.00M

28.6% Net Margin

EPS (Diluted)

$1.36

Total Assets

$204.52B

Free Cash Flow

$2.35B

Financial Statements
Beta
Revenue$2.36B
Interest Expense$111.00M
Net Income$674.00M
EPS (Basic)$1.39
EPS (Diluted)$1.36
Shares Outstanding (Basic)472.36M
Shares Outstanding (Diluted)480.01M

Key Highlights

  • 1Total revenue decreased by 3% to $2,356 million compared to the prior year's third quarter, primarily due to a 7% drop in fee revenue.
  • 2Net income increased by 21% to $674 million, largely due to a significant benefit of $362 million from resolving claims related to the 2008 Lehman Brothers bankruptcy.
  • 3Expenses from operations decreased by 21% to $1,415 million, primarily due to the Lehman Brothers resolution benefit, partially offset by provisions for litigation exposure.
  • 4Acquisition of Goldman Sachs Administration Services (GSAS) for approximately $550 million was completed in October 2012, strengthening the hedge fund administration business.
  • 5Net interest revenue increased by 7% to $619 million, driven by higher interest-earning assets and lower funding costs, although the net interest margin slightly decreased.
  • 6The company repurchased approximately 11.4 million shares of common stock during the quarter under its $1.8 billion repurchase program.
  • 7Dividends declared per common share increased to $0.24 from $0.18 in the prior year's comparable quarter.

Frequently Asked Questions

The significant increase in net income was primarily driven by a $362 million benefit recognized from the resolution of claims related to the 2008 Lehman Brothers bankruptcy. This benefit significantly offset operating expenses and boosted the overall profitability for the quarter.

Fee revenue declined by 7%, impacted by a 31% decrease in trading services revenue, largely due to lower currency volatility. Servicing fees saw a slight 1% decline, influenced by the weaker Euro and changes in asset mix, while management fees increased by 10% due to stronger equity market valuations and new business.

State Street is actively pursuing a Business Operations and Information Technology Transformation program aimed at standardizing processes and improving efficiency, expecting significant expense savings. Additionally, the company completed the acquisition of Goldman Sachs Administration Services (GSAS) to expand its hedge fund administration capabilities.

State Street maintained strong regulatory capital ratios. During the quarter, the company declared a common stock dividend of $0.24 per share, an increase from the previous year, and repurchased approximately 11.4 million shares of its common stock under its approved repurchase program.