State Street Beats Earnings Forecasts; Shares Jump

Money manager State Street posted better-than-expected quarterly profit on Tuesday and raised its full-year earnings forecast, prompting investors to drive its shares up more than 8 percent.

The company, the world's largest institutional money manager with $2 trillion in assets, won hundreds of new clients and survived the summer's debt market crisis better than analysts expected.

"One of the big reasons the market is reacting so favorably to the State Street numbers is that the company demonstrated it could get through a very difficult time without a blemish," said Gerard Cassidy, analyst at RBC Capital Markets.

State Street, which bought smaller rival Investors Financial Services earlier this year, said third-quarter net income climbed 29 percent to $358 million, or 91 cents per share, from $278 million, or 83 cents per share, a year earlier.

Costs related to the acquisition were $141 million, or 24 cents per share.

Excluding those costs, the Boston-based company earned $1.15 per share, well above analysts' average forecast of 94 cents, according the Reuters Estimates.

State Street Chief Executive Ron Logue said the acquisition, which added hedge fund and private equity clients, helped win $825 billion in assets for securities servicing and $26 billion for money management in the third quarter from clients like hedge fund Paulson & Co. and state pension systems.

The quarterly results prompted State Street to boost its outlook for the full year. It said it now expects earnings to rise more than 15 percent, up from an earlier forecast of 10 percent to 15 percent.

Third-quarter revenue jumped 48 percent to $2.2 billion, fueled in part by a 44 percent rise in fees earned for securities financing. State Street also saw a 22 percent increase in its management fees and a 21 percent gain in its trading services fees.

Like other asset managers who earn fees based on the amount of money they manage, State Street has benefited from a rise in global stock markets over the last year.

The company, which also makes money by holding trillions of dollars in securities in custody and calculating the bulk of mutual fund prices printed in newspapers, said assets under custody climbed 34 percent to $15.1 trillion. Assets under management rose 22 percent to $2 trillion.

The company said it was moving quickly to integrate Investors Financial and that the acquisition would dilute its full-year earnings by only 6 cents a share, roughly half what it expected originally.

The acquisition will boost 2008 earnings modestly, it said.