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Lower NIR, Fee Income to Hurt State Street (STT) Q4 Earnings
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State Street (STT - Free Report) is slated to report fourth-quarter and full-year 2023 results on Jan 19 before the opening bell. The company’s quarterly revenues and earnings are expected to have decreased on a year-over-year basis.
In the last reported quarter, STT’s earnings beat the Zacks Consensus Estimate. Results were largely driven by an increase in fee revenues and no provisions. However, higher expenses and a decline in net interest revenues (NIR) hurt results to some extent.
State Street has a decent earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an earnings surprise of 2.68%, on average.
The Zacks Consensus Estimate for State Street’s fourth-quarter earnings is pegged at $1.81 per share, which has been revised marginally upward over the past seven days. The figure indicates a fall of 12.6% from the year-ago quarter. Our estimate for earnings stands at $1.77, implying a 14.7% decline.
The consensus estimate of $2.94 billion for sales suggests a 6.8% year-over-year decline. Our estimate for sales is $2.95 billion.
Key Factors & Estimates for Q4
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $220.4 billion, which implies a fall of almost 1% from the previous quarter. Our estimate for the metric is pegged at $217.6 billion.
Lending activities continued at a slower pace in the fourth quarter, and the Federal Reserve kept the rates unchanged at a 22-year high of 5.25-5.5%. These factors are expected to have supported State Street’s NIR to some extent. However, an increase in funding costs weighed on NIR as interest rates remained high. Thus, NIR is likely to have been adversely impacted.
The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent or FTE basis) of $590 million indicates a sequential fall of 5.7%. We project NIR on FTE basis of $585.2 million.
Management projects NIR to be in the $550-$600 million range. This includes expected non-interest-bearing deposit rotation (expected to be $3-4 billion) and the impact of deposit repricing, which will likely be partially offset by stability in the total average deposit balance.
Fee Revenues: Lower volatility in foreign exchange (FX) markets is likely to have aided State Street’s FX trading services income. The consensus estimate is pegged at $312.8 million, which is relatively stable with the last quarter. Also, management projects FX markets revenues to be down modestly from the last-year quarter level. Our estimate for the metric is pegged at $362.4 million.
The consensus estimate for management fees of $464.8 million implies a 3% decline on a sequential basis. The company expects the metric to be stable on a year-over-year basis. Our estimates for the same is pegged at $456.3 billion.
The Zacks Consensus Estimate for servicing fees of $1.21 billion indicates a 2.1% decrease. The company anticipates the same to remain stable with last year's quarter level. We project the metric to be $1.2 billion.
The consensus estimate for securities finance revenues of $100.4 million suggests a 2.5% decline from the last quarter. Our estimates for the same is pegged at $97.1 billion.
However, the Zacks Consensus Estimate for software and processing fees suggests a 26.6% jump to $238.1 million. Driven by the timing of on-premise renewals and expected new SaaS installations, STT projects software and processing fees to go up in the range of 10-12% year over year. Our estimates for the same is pegged at $240 billion.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.36 billion indicates a slight fall from the prior quarter. We project the metric to be $2.39 billion.
Management expects fee revenues to be flat to up 1% year over year.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have led to a rise in operating expenses in the fourth quarter.
Further, State Street is set to trim around 4% or 1,500 of its workforce as part of its “multiyear transformation journey to drive increased productivity and create efficiencies.” As a result, the company is expected to incur $175-$200 million as a repositioning charge in the quarter.
Management expects adjusted expenses to be relatively stable on a sequential basis. This excludes potentially higher FDIC assessment fees.
We anticipate total non-interest expenses to increase modestly from the last quarter to $2.19 billion.
What the Zacks Model Reveals
We cannot conclusively predict whether State Street will be able to beat the Zacks Consensus Estimate this time. This is because the company doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for State Street is 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).
Banks Worth a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:
Synovus Financial (SNV - Free Report) is scheduled to release fourth-quarter and full-year 2023 earnings on Jan 17. The company has an Earnings ESP of +1.18% and carries a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
SNV’s quarterly earnings estimates have moved 2.2% upward over the past week to 94 cents.
The Earnings ESP for Bank OZK (OZK - Free Report) is +5.97% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and full-year 2023 results on Jan 18.
Over the past seven days, the Zacks Consensus Estimate for OZK’s quarterly earnings has remained unchanged at $1.45.
Image: Bigstock
Lower NIR, Fee Income to Hurt State Street (STT) Q4 Earnings
State Street (STT - Free Report) is slated to report fourth-quarter and full-year 2023 results on Jan 19 before the opening bell. The company’s quarterly revenues and earnings are expected to have decreased on a year-over-year basis.
In the last reported quarter, STT’s earnings beat the Zacks Consensus Estimate. Results were largely driven by an increase in fee revenues and no provisions. However, higher expenses and a decline in net interest revenues (NIR) hurt results to some extent.
State Street has a decent earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an earnings surprise of 2.68%, on average.
State Street Corporation Price and EPS Surprise
State Street Corporation price-eps-surprise | State Street Corporation Quote
The Zacks Consensus Estimate for State Street’s fourth-quarter earnings is pegged at $1.81 per share, which has been revised marginally upward over the past seven days. The figure indicates a fall of 12.6% from the year-ago quarter. Our estimate for earnings stands at $1.77, implying a 14.7% decline.
The consensus estimate of $2.94 billion for sales suggests a 6.8% year-over-year decline. Our estimate for sales is $2.95 billion.
Key Factors & Estimates for Q4
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $220.4 billion, which implies a fall of almost 1% from the previous quarter. Our estimate for the metric is pegged at $217.6 billion.
Lending activities continued at a slower pace in the fourth quarter, and the Federal Reserve kept the rates unchanged at a 22-year high of 5.25-5.5%. These factors are expected to have supported State Street’s NIR to some extent. However, an increase in funding costs weighed on NIR as interest rates remained high. Thus, NIR is likely to have been adversely impacted.
The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent or FTE basis) of $590 million indicates a sequential fall of 5.7%. We project NIR on FTE basis of $585.2 million.
Management projects NIR to be in the $550-$600 million range. This includes expected non-interest-bearing deposit rotation (expected to be $3-4 billion) and the impact of deposit repricing, which will likely be partially offset by stability in the total average deposit balance.
Fee Revenues: Lower volatility in foreign exchange (FX) markets is likely to have aided State Street’s FX trading services income. The consensus estimate is pegged at $312.8 million, which is relatively stable with the last quarter. Also, management projects FX markets revenues to be down modestly from the last-year quarter level. Our estimate for the metric is pegged at $362.4 million.
The consensus estimate for management fees of $464.8 million implies a 3% decline on a sequential basis. The company expects the metric to be stable on a year-over-year basis. Our estimates for the same is pegged at $456.3 billion.
The Zacks Consensus Estimate for servicing fees of $1.21 billion indicates a 2.1% decrease. The company anticipates the same to remain stable with last year's quarter level. We project the metric to be $1.2 billion.
The consensus estimate for securities finance revenues of $100.4 million suggests a 2.5% decline from the last quarter. Our estimates for the same is pegged at $97.1 billion.
However, the Zacks Consensus Estimate for software and processing fees suggests a 26.6% jump to $238.1 million. Driven by the timing of on-premise renewals and expected new SaaS installations, STT projects software and processing fees to go up in the range of 10-12% year over year. Our estimates for the same is pegged at $240 billion.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.36 billion indicates a slight fall from the prior quarter. We project the metric to be $2.39 billion.
Management expects fee revenues to be flat to up 1% year over year.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have led to a rise in operating expenses in the fourth quarter.
Further, State Street is set to trim around 4% or 1,500 of its workforce as part of its “multiyear transformation journey to drive increased productivity and create efficiencies.” As a result, the company is expected to incur $175-$200 million as a repositioning charge in the quarter.
Management expects adjusted expenses to be relatively stable on a sequential basis. This excludes potentially higher FDIC assessment fees.
We anticipate total non-interest expenses to increase modestly from the last quarter to $2.19 billion.
What the Zacks Model Reveals
We cannot conclusively predict whether State Street will be able to beat the Zacks Consensus Estimate this time. This is because the company doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for State Street is 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).
Banks Worth a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:
Synovus Financial (SNV - Free Report) is scheduled to release fourth-quarter and full-year 2023 earnings on Jan 17. The company has an Earnings ESP of +1.18% and carries a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
SNV’s quarterly earnings estimates have moved 2.2% upward over the past week to 94 cents.
The Earnings ESP for Bank OZK (OZK - Free Report) is +5.97% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and full-year 2023 results on Jan 18.
Over the past seven days, the Zacks Consensus Estimate for OZK’s quarterly earnings has remained unchanged at $1.45.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.