State Street Results Weighed by Low Appetite for Risk -- Update

By Chelsey Dulaney 

State Street Corp. on Friday reported results for its second quarter that met expectations despite a low appetite for risk, while announcing yet another addition to its legal reserves for currency-related claims.

State Street said it booked $156 million in charges to increase its legal accrual related to foreign-exchange. State Street made a similar addition in the first quarter.

In the latest quarter, State Street's results were weighed by low interest rates and big market disruptions.

"Toward the end of the second quarter of 2015 we saw a number of significant market disruptions, including the possibility of Greece exiting the eurozone and elevated equity market volatility in China, all of which drove markets down in June and reduced risk appetite," Chief Executive Joseph Hooley said.

In all, State Street reported earnings of $393 million, down from $602 million a year earlier. On a per-share basis, earnings fell to 94 cents from $1.38 a share a year earlier.

On an operating basis, which excludes the legal accrual and other items, per-share earnings fell to $1.37 a share from $1.39 a share a year earlier. Revenue grew to $2.73 billion from $2.68 billion a year earlier. Revenue grew 2.1% to $2.73 billion.

Analysts polled by Thomson Reuters estimated an operating profit of $1.37 a share and revenue of $2.73 billion.

Net interest revenue fell 4.6% to $535 million, pressured by low interest rates.

Assets under custody and administration edged up 0.9% to $28.7 trillion while assets under management fell 4.3% to $2.37 trillion.

In State Street's trading-services business, revenue grew 8.1% to $281 million, driven by a 16% jump in foreign-exchange trading.

Monetary policies abroad and diverging interest rate expectations for the U.S. relative to most other economies have helped drive up foreign-exchange trading volume for the bank recently.

State Street noted that though the strengthening of the U.S. dollar reduced its fee revenue outside of the U.S., expense cuts helped mitigate the impact to the bottom line.

Total fee revenue edged up 3.7% to $2.18 billion in the quarter.

In June, State Street disclosed that it could face a civil enforcement action from the U.S. Securities and Exchange Commission, accusing the bank of violating securities law tied to its use of consultants.

That came after State Street warned in May that it may be required by a written agreement to improve its compliance procedures after deficiencies were found related to the Bank Secrecy Act, anti-money-laundering regulations and U.S. economic sanctions regulations.

Write to Chelsey Dulaney at [e-mail]

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