State Street’s third-quarter results improved on surging asset management balances, but it fell short of earnings expectations largely because of elevated expenses to upgrade technology and implement a long-term cost-cutting plan.
Net income climbed 12.7% to $709 million from a year earlier, the $234 billion-asset Boston custody bank said in news release Friday. Earnings per share of $1.87 were 2 cents lower than the mean estimate of analysts compiled by FactSet Research Systems. Shares of State Street had fallen 7.9% to $73.36 in early afternoon trading.
Fee-based revenue increased 1.7% to $2.3 billion. The largest segment of that group, asset servicing fees, dropped 1.3% to $1.3 billion. But the second-largest, asset management fees, jumped 13.1% to $474 million.
Assets under custody and administration climbed 5.9% to $34 trillion. Assets under management rose 5.1% to $2.8 trillion.
Noninterest expense rose 2.9% to $2.1 billion on higher technology spending and investments related to the company's Beacon cost-cutting program. State Street said it expects net savings of $200 million for the full-year 2018 from Beacon, up from its previous estimate of $150 million. State Street’s income tax rate fell to 11.8% from 16.7%.
“We continue to digitize our business largely through the Beacon program to drive efficiencies in core operations while investing in differentiating our data and analytic solutions,” Chairman and CEO Joseph Hooley said in the release. “These cost savings initiatives will continue for some time, enabling us to calibrate our expenses to the revenue environment, while continuing to deliver strong new business results.”
Net interest income increased 11.4% to $672 million on higher interest rates in the U.S., and as State Street kept rates on deposit products low. State Street paid an average rate of 0.27% on interest-bearing deposits, an increase of 14 basis points from a year earlier.
