State Street’s stock (NYSE: STT) has lost 17% YTD, as compared to the 19% decline in the S&P500 over the same period. Further, the stock is currently trading at $77 per share, which is 6% below its fair value of $83 – Trefis’ estimate for State Street’s valuation. The custody banking giant outpaced the earnings consensus in the third quarter of 2022, but revenues missed expectations. Its total revenues marginally decreased to $2.96 billion – 1% below the year-ago level, despite a 36% increase in the net interest income because of improvement in interest rates. It was due to an 8% drop in the total fee income, primarily driven by a 12% decline in investment servicing and a 10% decrease in management fees. The fee income was reduced due to lower average market levels and the negative impact of currency translation. Notably, the Assets under Custody & Administration (AuC/A) and Assets under Management (AuM) were $35.7 trillion (down 18% y-o-y) and $3.3 trillion (down 15%) respectively at quarter-end. Overall, the adjusted net income was declined by 3% y-o-y to $669 million.
The bank’s top line marginally grew to $8.99 billion in the first nine months of 2022. It was primarily due to a 23% rise in NII because of an improvement in interest rates and loan growth, almost offset by a 3% decline in total fee revenues. Altogether, the adjusted net income increased by 3% y-o-y to $1.96 billion.
Moving forward, we expect the net interest income to continue to drive growth in Q4. All in all, State Street’s revenues are estimated to remain around $12 billion in FY2022. Additionally, STT’s adjusted net income margin is likely to see a slight drop in the year, leading to an adjusted net income of $2.46 billion and an annual GAAP EPS of $6.94. This coupled with a P/E multiple of just below 12x will lead to a valuation of $83.
|S&P 500 Return||-6%||-19%||72%|
|Trefis Multi-Strategy Portfolio||-6%||-22%||212%|
 Month-to-date and year-to-date as of 12/27/2022
 Cumulative total returns since the end of 2016