Key Takeaways And Trends From State Street’s Q4

State Street (NYSE:STT) reported worse-than-expected results for the fourth quarter of 2017 earlier this week. However, the custody bank’s shares gained around 4% since then, indicating that investors overlooked the earnings miss and chose to focus instead on the positive trends in its underlying operating figures. Most prominent among these trends is the strong growth in assets under custody for the bank’s core asset servicing business, while its asset management arm makes the most of the increasing popularity of exchange-traded funds (ETFs). Additionally, State Street has made notable progress in achieving its cost-cutting targets under the multi-year Beacon program.

We have summarized State Street’s Q4 earnings and also detailed the major takeaways from the announcement in our interactive dashboard for the company, the key parts of which are captured in the charts below. Additionally, we have increased our price estimate for State Street’s stock upwards from $100 to $110 primarily to factor in the impact of a lower corporate tax rate on the bank’s profits going forward.

See our full analysis of State Street

Regaining Lost Ground In ETF Space 

State Street’s total assets under management (AUM) has increased from under $2.5 trillion at the end of 2016 to almost $2.8 trillion now – an increase of  13% y-o-y. The increase was primarily driven by a 24% jump in ETF assets from $521 billion to $644 billion. ETFs now constitute more than 23% of State Street’s total AUM, even though passively-managed funds remain the largest constituent of State Street’s AUM with $1.6 trillion in assets.ETF Boom Is Also Driving Growth In State Street’s Core Custody Business

State Street’s Total Assets under Custody / Administration (AUC/A) reached a record $33.1 trillion at the end of 2017. The single biggest growth driver was the increase in custody assets from collective funds – which includes ETFs. Collective funds now responsible for over 29% of State Street’s total AUC/A – up from 26% a year ago.

Improved Net Interest Margins (NIM) Should Boost Profits

The Fed’s rate hike process has helped the interest rate environment recover steadily from the record lows seen in 2014-2015. State Street’s net interest margin has climbed considerably from 1.08% in Q4 2016 to 1.38% in Q4 2017 – resulting in quarterly net interest income increasing to its highest level since late 2012. Net interest income contributed almost 22% of State Street’s total revenues in Q4 2017 – up from 19% in Q1 2017.See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
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