US – State Street Corporation has announced a net loss of 23 million dollars on revenues of 1,082 million for the quarter ended June 30. For the first six months, total revenues came to 2,102 million dollars and net income to 73 million dollars.
Including pre-tax restructuring charges of 292 million dollars, relating to its cost reduction programme in the second quarter, the total reported expenses came to 1,139 million dollars. This compares with revenues of 1,003 million dollars and net income of 178 million dollars at the same period in 2002.
Affecting the second quarter figures are an outstanding tax matter relating to a real estate investment trust which was settled with the Massachusetts revenue department creating a tax benefit of 13 million dollars. The group is selling some Boston suburban real estate, resulting in a 13 million dollar pre-tax charge. In addition there are pre-tax merger and integration costs of 18 million dollars related to the acquisition of the Deutsche Bank global securities services (GSS) business,
For the GSS business, total revenue generated came to 150 million dollars for the quarter, while expenses came to 140 million dollars, with net income of 7 million dollars. Based on the results for period, the GSS business is generating some 580 million dollars of annualised revenue and 532 million dollars of annualised expenses. This does not include the Italian nor Austrian GSS business.
State Street expects to retain 89% of the available GSS client revenue acquired from Deutsche Bank. It said it is “ahead of schedule in reducing GSS expenses in the acquired business and expects to meet or exceed its targets for cost savings”. The costs are expected to be in the 90 to 110 million dollar range for 2003, of which 55 million dollars have been recorded in the first half of 2003. The acquisition will dilute earnings per share by around 0.01 to 0.03 this year.
Excluding GSS, securities services, fund administration and outsourcing activities, produced servicing fees up 7% to 390 million dollars in the second quarter, attributed to higher new business levels offset by lower equity values. Total assets under custody came to 8.5 trillion dollars, including 1.9 trillion dollars from GSS.
State Street Global Advisors’ management fees were down to 125 million dollars, compared with 129 million dollars a year ago, despite total assets under management rising to 901billion dollars from 770 billion a year ago. “Management fees reflected continued new business success, but were affected a decline in average month-end equity valuations.”
Securities lending, excluding GSS business, brought in revenues of 57 million dollars, compared with 68 million dollars the previous years. This is attributed to narrower interest rate spreads due to the less favourable interest rate environment than a year ago. This offset the growth in the volume of securities on loan. Foreign exchange trading revenue came in at 93 million dollars for the quarter, just a whisker above the previous year’s 92 million dollars.
The operating expenses for the business excluding GSS were 689 million dollars, showing a fall of 15 million dollars compared with the second quarter last year. The cost cutting plans in place are expected to reduce operating expenses by some 110 million dollars for the remainder of this year.
Commenting, chairman and chief executive officer David Spina said: “We’re on schedule in integrating the GSS business. We continue to win more than our share of new business. And we have succeeded in reducing our operating expense run rate, meeting the objective we established at the beginning of the quarter.”