State Street’s (STT - Free Report) second-quarter 2019 adjusted earnings of $1.45 per share beat the Zacks Consensus Estimate of $1.40. However, the figure was 28.9% below the prior-year quarter level.
The stock jumped 6.4% in pre-market trading, perhaps driven by success of the company’s expense saving efforts. Notably, the full-day trading session will depict a better picture.
Results reflect fall in operating expenses, new investment servicing wins of $390 billion and rise in assets under management (AUM) balance. However, lower revenues, and decline in assets under custody and administration were on the downside.
After considering several non-recurring items, net income available to common shareholders was $537 million or $1.42 per share, down from $697 million or $1.88 per share in the year-ago quarter.
Revenues Down, Adjusted Expenses Rise
Total revenues were $2.87 billion, decreasing 2% year over year. However, the top line beat the Zacks Consensus Estimate of $2.85 billion.
Net interest revenues declined 8.9% from the year-ago quarter to $613 million. The fall was due to lower non-interest-bearing deposit balances and accelerated MBS premium amortization from declining long rates.
Also, net interest margin decreased 8 basis points year over year to 1.38%.
Fee revenues declined 5.6% to $2.26 billion. This fall was mainly due to decrease in all components except processing fees and other revenues.
Non-interest expenses were $2.15 billion, down nearly 1% on a year-over-year basis. Rise in information systems and communications costs, and amortization of other intangible assets were majorly offset by higher other expense components. Excluding notable items and seasonal expense items, adjusted expenses increased 2.3%.
As of Jun 30, 2019, total assets under custody and administration were $32.7 trillion, down 3.3% year over year. However, AUM was $2.9 trillion, up 7.2%.
Strong Capital and Profitability Ratios
Under Basel III (Standardized approach), estimated Tier 1 common ratio was 11.4% as of Jun 30, 2019, compared with 11.3% as of Jun 30, 2018.
Return on common equity came in at 10.1% compared with 14.7% in the year-ago quarter.
Share Repurchase Update
During the reported quarter, State Street repurchased $300 million worth of shares. This was part of its 2018 capital plan.
Update on Expense Savings Plan
The company achieved $175 million in savings in the first half of 2019. Now, State Street expects to generate roughly $400 million in cost savings, up from prior target of $350 million.
Further, during the first six months of 2019, State Street recorded high cost location headcount reductions of more than 1,800, which exceeded the initial target of 1,500. Now, management targets to lower headcounts by 2,300 in aggregate by 2019-end.
Similar to the reported quarter, new business wins, strong balance sheet position and prudent cost saving efforts are likely to continue supporting State Street's profitability. However, uncertainty about the performance of capital markets, which is expected to affect its trading services revenues, makes us apprehensive. Further, expectation of rate cuts later this year is a major concern.
State Street currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Regional Banks
BB&T Corporation’s (BBT - Free Report) second-quarter 2019 adjusted earnings of $1.12 per share surpassed the Zacks Consensus Estimate of $1.08. The bottom line also represented 11% growth from the year-ago quarter.
SunTrust Banks' (STI - Free Report) second-quarter 2019 adjusted earnings of $1.44 per share reflect a decline of 3.4% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for earnings for the quarter under review was pegged at $1.46.
The Bank of New York Mellon Corporation’s (BK - Free Report) second-quarter 2019 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 94 cents. However, the figure reflects a decline of 1.9% from the prior-year quarter.
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