State Street reported broadly positive results for the second quarter of 2014, as total revenue increased by 1% year over year and 5% since last quarter, while net income increased by 7% and 71% respectively, due in large part to favorable tax expenses.
The bank also closed the gap on BNY Mellon in terms of assets under custody and/or administration, with State Street reaching $28.4 trillion compared to $28.5 trillion at BNY Mellon. State Street’s assets in these areas grew 10% year over year and 3% since last quarter, compared to BNY Mellon’s growth of 9% and 2% respectively.
Specifically, State Street’s assets under custody reached, $21.7 trillion, essentially tying for second in total AUC with J.P. Morgan, behind BNY Mellon. This number represents an increase of 15% year over year and 3% since last quarter.
For the quarter, State Street recorded $250 billion in new asset servicing wins, including 26 new alternative asset servicing mandates. In comparison, last quarter, new asset servicing wins totaled $189 billion for the quarter, 25 of which were for alternatives, while a year ago, new wins totaled $201 billion. Of the new wins this quarter, 58% of the assets come from outside the U.S., which is higher than in the past, noted CEO Jay Hooley on an earnings call, and perhaps represents more of a willingness of clients, particularly in Europe, to change service providers, he said. As a whole, State Street’s AuC/A shifted slightly more away from the U.S., measuring 75.32% last year to 74.76% in the first quarter of 2014 to 74.64% at the end of the second quarter. EMEA gained slightly more market share than Asia during this timeframe; EMEA gained 0.48% over the past year while Asia gained 0.2%.
Total asset servicing fees increased 7% year over year and 4% since last quarter $1.3 billion, primarily due to net new business and stronger global equity markets, as well as the impact of the weaker U.S. dollar, says the bank.
Securities lending revenue also shot up in the second quarter to $147 million, a 73% increase over last quarter, primarily due to the international dividend season, but the 12% gain over last year primarily represents new business from State Street’s enhanced custody offering. The enhanced custody offering allows clients to lend their assets directly to hedge funds rather than through a prime broker. State Street executives speak highly of the business as an important factor in gaining increased securities lending market share.
Total expenses decreased by 9% since last quarter, primarily due to a 15% drop in staffing costs, yet total expenses increased by 3% year over year. While State Street has been cutting staffing expenses in some areas, the company noted in its earnings call that regulation and new service mandates have offset some of the cuts, as more employees are needed in these areas. State Street said that regulatory costs will likely be $20 million higher than they anticipated next quarter, but the fourth quarter is then likely to be in line with the third.
Lastly, State Street’s Tier 1 common equity ratio reached 12.8% under the Basel III advanced approach, compared to an estimated 13.2% last quarter and 10.9% at the end of Q2 2013, under the same approach.
State Street Closes in on BNY Mellon for AuC/A, Securities Lending Revenue Soars
State Street reported broadly positive results for the second quarter of 2014, as total revenue increased by 1% year over year and 5% since last quarter, while net income increased by 7% and 71% respectively, due in large part to favorable tax expenses.