STATE STREET CORP. $70(New York symbol STT; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 403.8 million; Market cap: $28.3 billion; Price-to-sales ratio: 2.6; Dividend yield: 1.9%; TSINetwork Rating: Average; www.statestreet.com) sells accounting and administrative services to large institutional investors, such as mutual funds and pension plans.
State Street’s fee income rises and falls with the value of the mutual funds and other securities it manages. Recent stock market weakness reduced the value of its assets under custody and administration by 4.2%, to $27.3 trillion, as of September 30, 2015, compared to the same date a year ago. Assets it manages, including exchange traded funds, fell 9.0% to $2.2 trillion.
These declines lowered the company’s revenue by 1.2% in the third quarter of 2015, to $2.65 billion from $2.68 billion a year earlier.
Earnings fell 17.4%, to $480 million from $581 million. State Street spent $350 million on share buybacks in the latest quarter (it can still repurchase up to $1.1 billion worth of its shares by June 30, 2016). As a result, its earnings per share fell at a slower pace of 14.1%, to $1.16 from $1.35.
Besides the drop in assets under management, the company is dealing with low interest rates, which are hurting the interest income it gets from its loan portfolio. It’s also paying more to comply with tougher securities and banking regulations.
State Street recently completed a restructuring that included layoffs and outsourcing some of its computer systems. These changes have cut $625 million from its annual costs.
The company has now launched a new restructuring that will involve more job cuts and greater use of computers in its businesses. It didn’t say how long this plan would take to complete, but it should cut State Street’s costs by another $500 million a year. The stock trades at a moderate 14.2 times the $4.93 a share the company will likely earn in 2015. It recently raised its dividend by 5.0%; the new annual rate of $1.36 a share yields 1.9%.
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