Save State Street Corp. (STT), the third-largest custody bank, reported third-quarter earnings that beat analysts' estimates as fees for managing and overseeing client assets increased.
Net income rose to $542 million, or $1.26 a share, from $531 million, or $1.17, a year earlier, the Boston-based company said today in a statement. The shares rose as much as 6.9 percent, the most in 21 months, after earnings beat the $1.22-a-share estimate of nine analysts surveyed by Bloomberg.
State Street, led by Chief Executive Officer Joseph Hooley, has relied on cost cutting and stock-market gains to overcome the negative impact of low interest rates, higher regulatory expenses and investor claims including one alleging that the firm overcharged clients in its foreign-exchange unit. In a presentation today, State Street said it's on track to increase operating revenues by 3 percent to 5 percent this year.
The third quarter showed "across-the-board strength in the company's revenue growth," said Gerard Cassidy, a managing director at RBC Capital Markets, noting that one of the highlights was strong foreign-exchange revenue.
State Street rose 3.6 percent to $71.42 at 10:15 a.m. in New York. The shares dropped 6.1 percent this year through yesterday, the worst performance among the three biggest U.S. custody banks. Bank of New York Mellon Corp. rose 4.4 percent and Northern Trust Corp. increased 1.6 percent.
Earnings included a $53 million after-tax expense to resolve some outstanding claims related to its foreign-exchange business. The firm in July agreed to pay $60 million to settle investor claims it inflated revenue by overcharging clients for foreign-exchange services, a pact that resolved almost four years of litigation.
Custody banks keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds. State Street also manages investments for individuals and institutions.
Assets under custody and administration rose 9.3 percent from a year earlier to $28.5 trillion, as State Street won $302 billion in new business in the quarter. The money it manages for investors advanced 8 percent to $2.4 trillion, with the money-management unit gathering $3 billion during the quarter.
Management and servicing fees rose on gains in the global equity markets and net new business. Servicing fees increased 7.5 percent from the year earlier to $1.3 billion, while management fees rose 14 percent to $316 million. Foreign-exchange revenue increased 9.5 percent from a year ago to $161 million.
Total revenue increased 6.5 percent to $2.58 billion from the year earlier. Expenses rose 9.9 percent from a year earlier to $1.89 billion.
"Despite the current challenges we face from low interest rates, we have leveraged our strong market positions and capabilities to generate profitable top-line growth," Hooley said in the statement.
BNY Mellon, the largest custody bank, said last week that its third-quarter profit climbed 11 percent, helped by the sale of assets.