State Street posts 2nd-qtr profit, reversing year-ago loss; fees, assets under management rise

State Street posts 2Q profit as fees, assets rise

BOSTON — State Street Corp. said Tuesday that higher fees and growing assets under management lifted it to a second-quarter profit, reversing a year-ago loss that had been linked to losses on short-term corporate debt.

Revenue rose 9 percent to $2.3 billion from $2.12 billion a year earlier, topping analysts’ $2.25 billion estimate. Total fee revenue jumped 12 percent to $1.7 billion, with servicing fees climbing 20 percent mainly on new business and higher stock values. Assets under management rose 14 percent to $1.78 trillion, though they declined from $1.93 trillion at the end of the first quarter as stock values tumbled.

Boston-based State Street provides accounting, brokerage and other services to mutual funds, retirement plans, insurance companies and other customers. State Street President and CEO Joseph L. Hooley said the jump in total fee revenue demonstrates momentum in the company’s servicing fees as well as strength in its trading businesses, including foreign exchange, electronic trading and transition management.

For the three months ended June 30, the custodial bank posted net income after paying preferred dividends of $432 million, or 87 cents per share. That compares with a loss of $3.31 billion, or $7.12 per share, in the year-ago period which was weighed down by investment losses, a writedown of short-term corporate debt it administered onto its balance sheet and repayment of the U.S. Treasury’s TARP investment.

Excluding one-time gains and charges, State Street reported operating earnings of 93 cents per share in the latest quarter, in line with analysts’ average forecast, according to a Thomson Reuters poll.

As a trust bank, State Street has largely avoided the problems related to souring loans that traditional commercial banks have reported. State Street set aside $10 million for loan losses during the first quarter, compared with $14 million in the 2009 second quarter.

The company said expenses rose 32 percent to $1.94 billion, from $1.47 billion a year ago. Much of that increase came from a $414 million charge related to certain common and collective trust funds managed by State Street Global Advisors that engage in securities lending, and from a $21 million tax on bonus payments to employees in the U.K.

As fallout from the market meltdown, Britain’s Treasury has imposed a one-year tax of 50 percent on bank bonuses over $38,000, an effort it expects will generate $3.8 billion in revenue. Goldman Sachs on Tuesday said it took a $600 million hit in the latest quarter on the tax. JP Morgan last week said it would pay $550 million to the British Treasury.

In morning trading, State Street shares added $1, or 2.7 percent, to $38.35. The stock has changed hands between $32.47 and $55.87 in the past 52 weeks.