State Street’s Revenues Are Likely To Shrink Over The Next Two Years

State Street (NYSE:STT) is the second-largest custody bank in the world with Assets under Custody & Administration (AuC/A) of $32.9 trillion in 2018. It provides Investment Servicing (e.g. asset servicing, foreign exchange & other trading, fund services, liquidity services, securities lending) and Investment Management services to its clients. Its end users include mutual funds, retirement plans, insurance companies, institutional investors, private investors and high net-worth individuals. State Street faces stiff challenges and competition from offerings by its competitors such as JPMorgan, BNY Mellon, BlackRock, Vanguard and Citigroup.

Trefis details the key components of State Street’s Revenues in an interactive dashboard, along with our forecast for the next three years. In 2019, State Street’s Investment Management and Investment Servicing divisions are expected to contribute roughly $9.6 billion (83%) and $2 billion (17%) respectively to its Total Revenue estimate of $11.6 billion. Notably, this figure is lower than the bank’s revenues of $12 billion in 2018, and we expect the top line to shrink further to $11.3 billion in 2020 before recovering in 2021. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for State Street’s Revenues. Additionally, you can see more Trefis data for financial companies here.

What to expect from State Street’s Revenues

• Although revenues have grown 16% from $10.3 billion in 2016 to $12 billion in 2018, we expect it to drop 4% in 2019 due to asset management headwinds coupled with the impact of a weaker interest rate environment on State Street’s custody banking business
• Further, we expect the challenging industry conditions to reduce the revenues by 2% y-o-y in 2020.
• Overall, revenues are expected to decrease 4% from $12 billion in 2018 to $11.4 billion by 2021, mainly driven by negative growth in Asset Servicing division.

[A] Investment Servicing revenues are expected to decrease by 4% from $10 billion in 2018 to $9.6 billion in 2019 due to 6% decline in Asset Servicing revenues.

Although Investment Servicing revenues have grown 12% from $9 billion in 2016 to $10 billion in 2018, it is expected to witness negative growth over the next two years – resulting in the figure shrinking from $10 billion in 2018 to $9.3 billion in 2020. Thereafter, it is expected to improve 1% to reach $9.4 billion by 2021.

This segment could be sub-divided into 3 units:

• Asset Servicing includes the fee earned by the bank for serving as the custodian of financial assets on behalf of institutional investors. The expected drop in revenues in 2019 and 2020 would be driven by lower Investments Servicing & Administration Fee as % Assets under Custody and the negative impact of lower interest rates on the net interest income that is a component of asset servicing revenues.
• Securities Finance & Other consists of fees revenue from structured products business, software licensing and maintenance, among others. While the unit’s revenue share is relatively low, it is expected to grow at an average annual rate of 8% and cross $924 million by 2021.
• Foreign Exchange & Other Trading refers to the revenue from Trading Services and Securities Financing. The unit revenues are likely to drop 5% in 2019 before growing at an annual rate of 2% to cross $1.2 billion by 2021.

[B] Investment Management revenues are expected to remain more or less the same over the next three years.

• This division provides retail and institutional investors with a broad range of equity, fixed income, cash and alternative investment products
• The segment revenues have grown by 47% from $1.3 billion in 2016 to $2 billion in 2018 driven by 13% growth in total Assets under Management (AuM) and higher investment advisory fees as % of AuM.
• Although Total AuM is expected to grow 12% over the next three years, intense competition in the investment management space and challenging economic conditions would further pull down the fees as % of AuM.
• Overall, the segment revenues would record negligible growth over the next three years due to asset management headwinds.

Trefis estimates State Street’s stock (shows cash and valuation analysis) to have a fair value of $66, which is 10% higher than the current market price. Our price estimate incorporates changes to our forecast based on the most recent State Street earnings release.

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs
For CFOs and Finance Teams| Product, R&D, and Marketing Teams
All Trefis Data
Like our charts? Explore example interactive dashboards and create your own.