State Street Revenue Surges 48%; Says Conduit Exposure Limited

Number-one global institutional money manager State Street said Tuesday its Q3 net income climbed 28.8% from a year ago. Its shares climbed 3% in pre-market trading after revenue numbers came in ahead of analyst estimates, the firm boosted its full-year outlook, and dismissed concerns over its conduit portfolio. Q3 earnings were $358 million ($0.91/share), up from $278 million ($0.83/share) a year ago; analyst forecasts were for EPS of $0.94. Revenue surged 48% to $2.24 billion, up from $1.51 billion last year, and better than the $2.02 billion analysts were looking for. State Street said that for 2007, it expects to exceed the top of its previous ranges for all three goals -- EPS, revenue and return on equity -- assuming markets remain stable. Over the first nine months, it said, the company has performed at or above the top of its ranges for EPS growth of 10%-15%, revenue growth of 20%-22%, and return on equity of 14%-17%. According to Reuters Estimates, analysts had been expecting full-year revenue of $7.67 billion and EPS of $3.93. Commenting on the impact of recent market activity affecting fixed-income investments, CEO Ronald Logue said, "The fixed-income markets have experienced unprecedented disruption in this past quarter. We believe we are well positioned with both our portfolio and our asset-backed commercial paper conduits. While liquidity in the fixed income market remains challenging, our concentration in high-quality assets in our own portfolios as well as in the conduits, have limited the impact of this disruption on our business." On Aug. 28, the London Times raised concerns when it reported State Street had $22 billion in exposure to asset-backed commercial paper conduits, with credit lines to at least six conduits, collectively representing 17% of its total assets (full story). On Oct. 1 Prudential Financial sued State Street for mortgage-related losses in retirement accounts.

Sources: Press release, Reuters, Bloomberg
Commentary: Hold On to State Street -- Barron's • Tightening of the Liquidity Noose • State Street Has $22 Billion Conduit Exposure -- TimesOnline
Stocks to watch: STT. Competitors: C, WB. ETFs: KBE, KCE, RKH

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