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State Street says GSS operating at break-even

GLOBAL – State Street Corp. says the Global Securities Services business it acquired from Deutsche Bank is “operating at break-even”, with 465 client conversions completed.

“After eight months of operation, the GSS business, excluding ‘out-of-scope’ results and one-time costs, is operating at break even,” the bank said in its third-quarter earnings statement.

“Based on the third-quarter 2003 operations, the business as acquired, excluding ‘out-of-scope’ revenue and expenses, is generating approximately 628 million dollars of annualised revenue and about 520 million dollars of annualised expenses,” it added. “Out-of-scope” refers to GSS businesses that were related to Deutsche Asset Management but that were not part of the acquisition.

“With most GSS clients having determined their service provider, we now expect to retain approximately 90% of the available client revenue acquired, which excludes ‘out-of-scope’ revenue.”

It expected to meet its target in cutting GSS expenses in the acquired business. To date, State Street has completed 465 client conversions.

Total assets under custody are now 8.8 trillion dollars, including two trillion dollars attributable to the GSS business.

The Boston-based bank reported net income in the third quarter of 202 million dollars, up 10% on the 182 million dollars posted a year ago. Total revenue rose 18% to 1.13 billion dollars.

State Street Global Advisors’ investment management fees rose 17% to 137 million dollars. “Management fees reflected continued new business success, complemented by an increase in average month-end equity valuations,” it said.

Total assets under management rose to 965 billion dollars from 707 billion dollars.

The company says it has successfully cut its payroll, which now totals 19,850, including staff related to the GSS business.

Chairman and chief executive David Spina said: "The short term goals of this program were largely achieved in the third quarter and we expect to receive continuing benefits in the future. Since revenue has resumed growing in the last several quarters, it is likely we may incur some increase in variable costs in the near term."

Spina added: "Our success in integrating the Global Securities Services business at the same time that we reduced our expenses and continued to win new business, demonstrates the depth of State Street's experience in managing complex business requirements.

"We are laying an ever-stronger foundation for State Street's profitable growth."

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