Magazine article American Banker

Deal Boosts State Street; Mellon Stock Takes a Hit

Magazine article American Banker

Deal Boosts State Street; Mellon Stock Takes a Hit

Article excerpt

Shares of State Street Corp. soared Tuesday when it reported earnings in line with analysts' expectations and unveiled an asset management acquisition. But Mellon Financial Corp. shares fell after the company reported earnings and a deal to sell its retail operations.

State Street reported a 12.8% profit rise from a year earlier, to $167 million, or 50 cents per share. In an investor conference call, chief financial officer Ronald L. O'Kelley said that revenue from new business and securities lending offset a decline in market revenue.

The Boston-based company said fee revenue rose 11.4%, to $731 million, while servicing fees increased 16.6%, to $422 million.

On Tuesday the company also announced that its asset management arm, State Street Global Advisors, had agreed to buy the passive equity business of Gartmore Investment Management PLC, a London investment management firm mostly owned by Nationwide Mutual Insurance Co. and with a wide range of British institutional clients. The price was not disclosed.

The deal would add $25 billion to State Street's current $727 billion under management, adding scale in a business that depends in large part on volume.

State Street stock rose 7.28%, but analysts said the Gartmore deal was not the reason. Instead they cited the earnings report and a rebound from a decline Monday, when Bank of New York Co., a competitor in the securities processing business, cautioned investors on its outlook for the rest of the year.

Bank of New York stock, which fell 12.95% Monday, fell again Tuesday, by 1.16%, despite an upgrade from James F. Mitchell of Putnam Lovell Securities Inc.

Mr. Mitchell upgraded his short-term rating to "buy" from "hold." He said that the selloff was overdone. "Bank of New York still has top market shares in global securities services," he wrote in a research note, and added that he continues to expect growth in the securities business. …

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