State Street Corp. reported a first-quarter profit increase along with record revenue.
The Boston company said Tuesday that net income increased 7.5% from a year earlier, to $314 million, or 93 cents a share, matching the average estimate of analysts polled by Thomson Financial.
Revenue rose 11%, to $1.7 billion, as demand for its products and services increased.
Ronald E. Logue, State Street's chairman and chief executive officer, said during an earnings conference call that his company expects revenue to rise 16% to 18% this year, versus last year's growth of 8% to 10%.
Last month State Street closed a deal announced in January to acquire Currenex Inc., a London independent currency exchange. The $564 million acquisition is expected to help diversify State Street's trading customers beyond traditional asset managers to include more active currency managers and hedge funds.
State Street is expected to complete its deal to acquire Investors Financial Services Corp. of Boston in the middle of the year. The stock deal, valued at about $4.5 billion, was announced in February.
Investors Financial provides investment services including mutual fund, offshore, and hedge fund servicing, as well as custody, securities finance, cash management, foreign exchange and transition management. It has $2.2 trillion of assets under custody.
Mr. Logue said acquiring Investors Financial would enhance State Street's ability to service mutual funds, hedge funds, and offshore funds and would add private-equity servicing. He expects the deal to be dilutive to earnings by 14 cents a share this year, neutral next year, and accretive by 10 cents in 2009.
Analysts said that they are confident State Street would be able to retain Investors Financial clients after the acquisition, because of the way it exceeded expectations after acquiring Deutsche Bank AG's global securities servicing business in January 2003. State Street was able to retain 90% of the customers it acquired from Deutsche Bank.
Edward J. Resch, State Street chief financial officer, said the Investors Financial acquisition would help State Street continue to accelerate its international growth.
According to an interview on Tuesday with Mr. Logue, international business generated 43% of State Street's asets in the first quarter, up from 39% at the end of last year. He said after the Investors Financial acquisition is completed, State Street will again be generating 39% of its assets overseas, but he would like to raise that figure to 50%.
"Europe and Asia are doing very well, and our activities in China are bearing fruit," he said during the conference call. "China is very important to us, and Japan is performing strongly, too."
Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, said most fee-based banking companies are targeting foreign markets for growth.
State Street will need to use both organic growth and acquisitions to reach its international growth targets, he said.
"With opportunistic acquisitions, State Street can reach this goal in 24 months, but it could take them up to five years if they only grow organically. I think State Street wants to reach this goal in an astute and timely fashion, but they are not just going to do something foolish to get there," Mr. Cassidy said.
Management fees at the company's money management unit, State Street Global Advisors, increased 19% from a year earlier, to $261 million. The parent company's assets under management increased 20.1%, to $1.85 trillion, and assets under custody increased 14.8%, to $12.33 trillion.
