State Street announced today that at $4 billion, total revenues in 2002 were up less than half of one per cent on 2001. The results include a net gain on the sale of State Street’s Corporate Trust business of $495 million, equal to $296 million after taxes.
With both asset servicing and fund management fees up through acquisition and new business, and brokerage fees booming on the back of rising transaction volumes, the problem areas were foreign exchange, securities lending and credit advances.
Servicing fees were up 4% for the year, to $1.7 billion. Management fees were up 2%, to $526 million. Brokerage fees rose $35 million, to $124 million. But foreign exchange trading revenue declined $68 million, to $300 million, and net interest revenue was down $52 million to $1.0 billion.
However, expenses appear to be under control. Operating expenses were $2.8 billion for the year, down $17 million (1%) on a year ago. The professional advice and the media budgets were both cut, and staff went.
“This was a year of outstanding accomplishment for State Street, achieved in a very challenging environment,” says David A. Spina, chairman and CEO. “We won important new business mandates, continued to strengthen our client relationships, and expanded our product range. These achievements contributed to continued growth in State Street’s earnings per share, making this our 25th consecutive year of EPS growth. Our success in winning new clients and streamlining operations to control expense growth helped us overcome the challenges posed by weak financial markets worldwide and a difficult interest-rate environment.”
The fourth quarter results were also published today, giving the industry an idea of how the securities services business has fared in recent months.
In the core securities services businesses – fund accounting, fund administration, custody, NAV calculation, securities lending, performance measurement and analytics, compliance monitoring, and operations outsourcing for investment managers – State Street’s fee earnings were up just 1%, to $427 million. It seems acquired business offset the plunge in ad valorem earnings in falling equity markets and exceptionally sticky conditions in securities lending. Total assets under custody ended the year at $6.2 trillion – exactly where they were a year ago.
On the fund management side of the business, earnings were down. Q4 management fees from State Street Global Advisors were $126 million, compared to $129 million a year ago. Total assets under management were $763 billion, compared to $775 billion a year previously, which suggests that SSGA has secured plenty of new mandates, but earned less on them.
Foreign exchange trading revenue was $62 million for the quarter, compared to $83 million a year ago, reflecting low currency volatility in the final months of the year. Brokerage fees were $38 million, compared to $23 million a year ago, driven by significantly higher equity trading volumes. Securities gains of $31 million, compared to $7 million last year, reflected opportunities created by the low-interest rate environment.
Reported net interest revenue for the fourth quarter was $225 million. On a taxable-equivalent basis, net interest revenue was $240 million, a decline of $65 million from a year ago.
Lower yields on assets, thanks to the continuing decline in interest rates, offset growth in the balance sheet.
Spina addressed directly the doubts expressed that State Street could handle an acquisition of the size of Deutsche GSS, and insisted that the transition was going well.”Our agreement to acquire significant portions of Deutsche Bank’s Global Securities Services business was a defining moment for our company,” he says. “We’re on track to close the agreement soon, and our integration team is working energetically to ensure a successful transition.”