State Street shares up on 3Q report, expense cuts

BOSTON -- State Street Corp. shares rose on Tuesday after the custody bank's third-quarter earnings topped Wall Street expectations due to expense cutting and growth in investment management revenue.

THE SPARK: The Boston-based company reported adjusted earnings of $473 million, or 99 cents per share, on revenue of $2.36 billion. Analysts, on average, were expecting adjusted earnings of 96 cents per share on revenue of $2.38 billion, according to FactSet.

THE BIG PICTURE: State Street provides money-handling services to pension funds, mutual funds, retirement plans and other institutional investors, and also manages investments, including the "SPDRs" family of exchange-traded funds. The company had $23.4 trillion in assets under custody and administration as of Sept. 30, and nearly $2.1 trillion under management. Like many other banks, State Street has recently been pressured by persistently low interest rates.

THE ANALYSIS: James Shanahan, an analyst with Edward Jones, attributed State Street's better-than-expected earnings in part to expense management. Shanahan said in a note to clients that compensation and benefits expenses were 39 percent of the company's operating revenue, similar to the 38.8 percent ratio in the second quarter but much lower than the 44.3 percent in the first quarter. Shanahan called the expense results "a key positive."

Shanahan said strength in fees from asset servicing and investment management helped offset weakness in other areas, particularly trading and securities lending fees.

SHARE ACTION: Shares of State Street rose $1.90, or 4.6 percent, to $43.48 in midday trading. The stock has traded in a range of $35.05 to $47.20 over the last 52 weeks. Through Monday, the company's stock was up 3 percent for the year.