(Bloomberg) -- State Street said second-quarter earnings increased 3% as company generated a decline in expenses.
Net income on an adjusted basis rose to $582 million, or $1.46 a share, from $565 million, or $1.36, a year earlier, the custody bank and asset manager said in statement Wednesday. The results beat the $1.27 a share average estimate of analysts surveyed by Bloomberg.
State Street, under Chief Executive Officer Jay Hooley, is focusing on cost savings as revenues are being squeezed by low interest rates, market swings and regulatory changes. Total second-quarter expenses fell to $1.86 billion from $2.13 billion a year earlier. To accelerate cost reductions, the company introduced a technology transformation program that led to job cuts announced in October.
Total revenue fell 1.3% to $2.57 billion. In its asset management business, State Street had net outflows of $35 billion in the quarter. Last year the company set aside money for legal costs and the adjusted earnings account for this accrual.
ETF EFFORT
State Street has been trying to improve its asset management unit after its exchange-traded fund business lost ground to BlackRock and Vanguard Group. In May, it named Nick Good and Rory Tobin to take over the ETF business. Last April, State Street hired Ronald O’Hanley from Fidelity Investments to take over the asset management business. The company has also been moving into more sophisticated products that charge higher fees, and directing those offerings more toward retail clients.
State Street said on July 26 that the company agreed to pay $382.4 million to settle U.S. authorities’ allegations that it applied hidden markups to clients’ currency trades. State Street made “substantial” revenues by telling customers it guaranteed the most competitive rates on FX trades, the U.S. Securities and Exchange Commission said in a statement.
The company will pay $167.4 million in disgorgement and fines to the SEC, a $155 million penalty to the Justice Department and $60 million to resolve allegations by the Labor Department.
INTEREST RATES
Asset managers and competitors have struggled since the Federal Reserve lowered rates near zero in 2008 and raised them only once since then, in December. While recent economic data have beaten forecasts, Fed Chair Janet Yellen has emphasized a gradual pace for future rate increases. The Fed announces its rate decision today.
Even with Yellen’s view, the bond market sees a greater chance than it did weeks ago that the Fed will lift rates this year. It now assigns a 49% probability by December, according to pricing in federal funds futures contracts.
State Street’s shares are down about 20% in the past 12 months, compared with a decline of 6.9% for BNY Mellon and 8.3% for Northern Trust. It’s the third worst performer this year in the 10-member S&P 500 Asset Management & Custody Banks Index.
Custody banks keep records, track performance and lend securities for institutional investors.
