(FROM THE WALL STREET JOURNAL 1/24/15)
By Daniel Huang and Saabira Chaudhuri
Two trust banks turned in fourth-quarter earnings reports Friday
that disappointed investors.
State Street Corp. offered a lackluster view for 2015, while
Bank of New York Mellon Corp. reported lighter-than-expected fee
revenue, largely because of weakness at a unit that services stock
and debt issuers. In explaining its 2015 outlook, State Street
officials noted that net-interest revenue is likely to decline on
an operating basis in 2015.
"State Street's management seemed more comfortable with the
lower end of their range" of prospective earnings in 2015, said Jim
Shanahan, a senior equity analyst at Edward Jones. Two of the main
culprits: a low-interest rate environment and regulatory
requirements that will continue to pressure margins. Mr. Shanahan
added that while the Boston-based bank was more explicit in stating
its challenges than BNY Mellon, both banks faced many of the same
issues.
Shares of State Street closed down 6.1% at $72.40, while BNY
Mellon fell 4.7% to $36.90.
State Street reported earnings of $525 million, down from $545
million a year ago. On a per-share basis, however, earnings rose to
$1.24 from $1.22 a year earlier. Revenue improved 7.8% to $2.72
billion. On an operating basis, profit rose to $1.37 a share from
$1.15 a share a year earlier. Analysts polled by Thomson Reuters
estimated an operating profit of $1.26 a share and revenue of $2.67
billion.
"It was a pretty mixed quarter" for State Street, wrote Evercore
ISI analyst Glenn Schorr, who also noted that a strong dollar hurt
the firm's fees.
The stronger U.S. currency negatively impacted servicing fees,
but was offset by net new business and more transactions, according
to Chief Financial Officer Michael Bell. Management fees also took
a roughly $5 million hit due to factors including currency moves
and lower performance fees, Mr. Bell said.
The bank also recorded after-tax charges totaling $67 million,
or 16 cents a share, in the fourth quarter for legal accrual
related to indirect foreign exchange matters and the completion of
an operations and technology transformation.
BNY Mellon posted a profit of $807 million, up from $513 million
in the prior-year period. On a per-share basis, earnings rose to 70
cents from 44 cents.
Excluding one-time items like a tax benefit and restructuring
charges, the bank posted earnings of 58 cents a share, missing the
59 cents expected by analysts polled by Thomson Reuters.
Revenue improved about 2% to $3.69 billion, while analysts had
expected $3.81 billion in revenue.
Revenue from issuer services, which services stock and debt
issuers around the world, was down 19% from a year earlier and 39%
from the third quarter to $193 million, the lowest level since
2007, said CLSA analyst Mike Mayo on the bank's analyst call.
Still, the bank said fees from its corporate-trust unit -- a
component of issuer services that processes payments for companies,
municipal governments and debt issuers -- had climbed a bit from
the third quarter.
"We are near the inflection point for improved revenue growth in
corporate trust," said Chief Executive Gerald Hassell
The company partly offset weaker revenue by showing stronger
expense controls in the fourth quarter, as a slew of measures it
has taken through 2014, such as reducing staffing, bringing
application development in-house and selling its Wall Street
headquarters, bore fruit.
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