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Rating:Three Things to Know from State Street's Earnings Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, April 22, 2013

Three Things to Know from State Street's Earnings

Reported by Tommy Fernandez

On an earnings-adjusted basis, it was another solid quarter for Joseph Hooley's State Street, thanks to new business and growth in select asset categories.

First the basics. If you peruse the company's earnings data and the SeekingAlpha transcript of the analyst conference call, you'd note that State Street reported a first quarter earnings per share of 96 cents, down from $1.00 a year ago, including the impact of $118 million devoted to equity incentive compensation expenses for retirement-eligible employees and payroll taxes. Analyst consensus was for 93 cents EPS for the quarter.

Net income was $455 million, up from $417 million a year ago, and revenue was $2.44 billion, up 1 precent from last year.

Meanwhile, State Street's total assets under management reached $2.18 trillion, up 9.9% from a year ago.

During the analyst conference call, chairmanned and chief executive Hooley had this to say about his company's results this quarter:

State Street benefited from stronger-than-expected equity market performance and increase in foreign exchange market volumes and continued strong expense controls across the organization. We continue to bring on new business and our pipelines remain strong.

The SeekngAlpha conference call transcript offers at least three important insights into how the company is doing.

These insights include:

Point 1: ETFs Are Still Doing Nicely
Point 2: Some Asset Categories Are Stuck in Neutral
Point 3: Europe and Alternatives Are Doing Well, Thank You Very much

Now, to drill down into these points.

Point 1: ETFs Are Still Doing Nicely
Hooley had this to say about ETFs:

Within our ETF business, strong markets fueled a 5% increase in our ETF assets under management to a record $354 billion at March 31, 2013, compared to the fourth quarter of 2012.

Net client inflows were $5 billion in the first quarter driven mainly by securities finance cash collateral pools. We experienced net ETF outflows of $6 billion from both our gold ETF amidst declining gold prices and from our S&P 500 ETF, which historically has outflows in the first quarter as institutions reposition their risk profile in the market.

These net ETF outflows were partially offset by a strong start to the year in Europe, where we've been focused on expanding our ETF product offerings and inflows into SSgA's sector -- select sector ETFs in the U.S.

Point 2: Some Asset Categories Are Stuck in Neutral
In response to an analyst's question, Hooley had this to say about the pension business:

But I guess, more to your sector question, pension's kind of stable. We've had some good new business wins there, no losses that I'm aware of, so kind of a net positive. But as you know, in the pension segment, it's a pretty stable segment. Most of these are DB-oriented funds that aren't getting new flows. So on the other side broadly, the funds business, U.S. and non-U.S., obviously benefits from flows and all those things that happen when clients rerisk. And that pipeline and the successes have been very good and as you know in many markets, including the U.S. where a little bit of significant market share leader, and I think we continue to gain on that leadership. I just draw a little bit of a line under Dimensional Fund Advisors, which is a very significant U.S.-based, but with global products in the asset management space, and converting that business this quarter was a big win for us. And we would hope that they will continue to succeed. And with the success, we'll benefit from it as well. So again, we pretty diversified.

Point 3: Europe and Alternatives Are Doing Well, Thank You Very much
During various points within the conference call, Hooley touched on some areas that were exhibited strength during the quarter:

The FX -- the ETFs was a little bit of a mixed story, so we had -- as we've been telling you, we're creating and innovating new products in Europe and the U.S. We saw some good growth in Europe. But the offset was you've seen gold prices and therefore, we've seen some outflows into gold, so that was a little bit of a negative on the ETF side. And you also -- we typically see year end a little bit of a run-up in the S&P 500 ETF, which came off in the first quarter. So those are kind of the quarter-to-quarter trends that occurred. I point you a little bit to the 11% year-over-year and say that we feel pretty good about how that business is progressing. We think we're in some of the sweet spots of the market, passive and ETFs, in particular, albeit, there was a little bit of a muted quarter-over-quarter growth in management fees.

The only other segment that I would call out would be the alternative segment, which -- and you see this in broad-based flows or asset growth. The alternatives continue to grow. And for us, the growth is twofold. It's -- we grow as the funds grow, we grow as we competitive -- we're successful in competitive new business wins, but also a good deal of that particularly private equity and real estate segment is yet well [ph] source. So that's why I continue to call it out because that should continue to be a ripe area for growth for us.

It is important to note that asset management is only one part of State Street's business. It also has significant asset servicing operations among others. To learn more about these other arms, turn to company's earnings data and the SeekingAlpha transcript of the analyst conference call

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