State Street, one of the world's biggest institutional money managers, said Tuesday that second-quarter profit surged 50 percent on record revenue.
The company , which also earns fees for holding trillions of dollars in securities in custody and calculating the bulk of mutual fund prices printed in newspapers, said the results prompted it to raise its full-year earnings targets to the higher end of its previous range.
State Street shares rose 4 percent to $57.93 in early trading on the New York Stock Exchange.
"The results were good but not great," RBC Capital Markets analyst Gerard Cassidy said.
Unrealized losses on four funds known as conduits inched higher and might rattle investors, analysts said.
Net income at the Boston-based company increased to $548 million, or $1.35 per share, from $366 million, or $1.07 a share, a year earlier.
Excluding costs from last year's acquisition of Investors Financial Services Corp, earnings were $1.40 per share, 4 cents above the average Wall Street forecast, according to Reuters Estimates.
Revenue climbed 39 percent to a record $2.7 billion. A main driver was the 71 percent jump in net interest revenue to $657 million.
This quarter the company earned significantly more money for investing funds than it had to pay out to hold customer funds, thanks in part to recent Federal Reserve interest rate cuts aimed at stimulating the sluggish economy helped.
Fee revenue, earned for managing money and servicing portfolios, for example, climbed 31 percent.
While the gain is impressive, investors tend to like fee revenue to grow more strongly than net interest revenue, RBC's Cassidy said.
Also the company said that unrealized losses in its off-balance sheet commercial paper program, called conduits, rose to $1.6 billion from $1.5 billion during the first quarter.
Three months ago when the company posted higher first quarter earnings, the news on unrealized losses rattled investors enough to obscure the other strong numbers, for a while.
Since then State Street has taken action and sold $2.8 billion in stock to act as a buffer for potential losses it might face on the mortgage-debt funds.
Overall the quarterly results were strong enough to prompt State Street, which is normally conservative, to raise its outlook for 2008 earnings to the higher end of its stated ranges.
"Given the strength of the first half of the year, we now expect both growth in operating earnings per share to approach the high end of the 10 to 15 percent range, and achievement of operating return on equity to approach the high end of the 14 percent to 17 percent range in 2008," the company said in a statement.
Last month State Street forecast revenue growth would be at the higher end of its 14 to 17 percent range but executives left the outlook for operating earnings and operating return on equity in the middle of those ranges.
Like other financial sector stocks, State Street has suffered heavy losses this year, having declined 31 percent from January to Monday while the Standard & Poor's index dropped 16 percent.