Magazine article American Banker

State Street Sees 2nd-Half Squeeze from Interest Hikes

Magazine article American Banker

State Street Sees 2nd-Half Squeeze from Interest Hikes

Article excerpt

State Street Corp. will face pressure on revenues for the remainder of the year because rising interest rates will pinch margins, executives said Tuesday.

The Boston company, which specializes in servicing securities trades and managing assets, is also struggling to rein in expenses. It told analysts that spending will erode second-half profits by 1 to 3 cents per share as it brings on new business overseas and invests in technology.

Second-quarter profits of $220 million compare favorably to a loss in the year-earlier period, but analysts said some trends in the report spooked investors. For one thing, the company admitted to a $13 million processing error. In the first quarter State Street had a similar-sized error, and while it chalked that up to growing pains, analysts said it suggests last year's purge of employees may have cut too many experienced workers.

Shares of State Street dropped more than 8% in morning trading and closed down Tuesday 9.2%.

Ronald E. Logue, who took over as chairman and chief executive at the end of June after the abrupt retirement of David A. Spina, worked to put a positive light on the quarter Tuesday. "I feel good about the fundamentals of the business. I like the trends," he said in a telephone interview.

Earnings per share of 68 cents, excluding expenses for the integration of custody operations acquired last year from Deutsche Bank AG, met the expectations of analysts. But some on Wall Street said 3 cents a share for securities gains in the period should not be counted, and in that case earnings per share of 65 cents would have been below expectations. …

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