With Wall Street dealer banks - under pressure on the capital and risk-taking fronts - pulling back from their traditional role as middlemen in corporate bond trades, State Street (STT) (and rival BK soon) is stepping into the $9.6T market.
Wall Street banks' bondholdings are off more than 70% from their peak in 2007, according to Fed data, raising worry bond investors might find themselves stuck with paper they need to sell in times of market stress, and large investors like AllianceBernstein, BlackRock, and Fidelity have been pushing for new avenues to buy and sell.
One advantage the trust banks have is that they don't have trading desks of their own, and investors can worry less about their interests leaking out. "Global custodians are in the natural position to have this service," says Eaton Vance's Michael O'Brien.
Expecting dividends to grow 49% on average for the banks subject to the Fed's stress tests (about the same as last year), Markit, says Citigroup (C) and Bank of America (BAC) will lead the way with 400% boosts. "They are the last of the major banks paying minimal dividends ... change is overdue."
While 400% is a big number, Citi and BofA will continue to lag their peers in terms of yield (400% growth on a penny just leads to a nickel).
Also expected to have a significant pop is Morgan Stanley (MS) - a doubling of the payout to $0.10 per share and a 1.4% yield. Others in the top 5 in increases are Zions Bancorp (ZION) with a 75% boost to $0.07 and Regions Financial (RF) up 67% to $0.05.
The others: KEY +27%, HBAN +20%, BK +20%, STI +20%, COF +17%, DFS +15%, AXP +13%, STT +12%, JPM +11%, CMA +11%, PNC +9%, USB +9%, GS +9%, FITB +8%, WFC +7%, NTRS +6%, and no soup for BBT and MTB where the dividends are expected to be flat at $0.23 and $0.70 per share, respectively.
As for ETFs, the dividend jumps are expected to have the biggest impact on the XLF which would see a 25% increase in payout: The ETF has 81 companies, but the top 5 holdings - BofA, Wells, JPM, Citi, USB - make up 41% of assets. In contrast, just two CCAR banks make up the top five holdings of the KBE and it should see a more muted increase of just 18%.
The latest move by an ETF operator to address inefficient trading seen as holding back growth in Europe's fragmented ETF market, State Street (STT +0.1%) launches FundConnect, enabling large institutional clients to trade multiple products via electronic platform rather than faxes and phone calls.
“Developments like FundConnect that help support liquidity providers across Europe will play an important role in enabling the ETF industry to grow,” says Alexis Marinof, State Street's head of SPDR ETF for EMEA. Available in the U.S. since 2008, FundConnect has been adapted to deal with the complexities of the European ETF market.
One European market maker notes iShares already has an online ETF platform, so this effort by State Street is welcomed and will make him/her a more active user.
The U.K.'s Financial Services Authority fines State Street (STT) $38M for deliberately overcharging six clients $20.2M in 2010 and 2011, and acting with "complete disregard:" for the interests of its customers.
The FCA said State Street had developed and executed a deliberate strategy to charge substantial mark-ups on agreed fees, and the scheme only came to light after one client discovered it.
State Street: "(The employee) behavior was unacceptable and a significant departure from the high standards of conduct and transparency that we expect and certainly not consistent with the manner in which our employees act on behalf of clients every day."
State Street got a 30% discount on the fine for settling early.
Operating EPS of $1.15 off $0.04 from Q3, but up from $1.11 a year ago.
Revenue of $2.53B up from $2.46B a year ago. Expenses of $1.76B up from $1.71B. ROE of 10.3% flat from last year.
Positive markets: Assets under custody of $27.427T up 12.5% Y/Y. AUM of $2.345T up 12.4%.
Tier 1 capital ratio of 17.3% down from 19.1% a year ago. About 8M shares repurchased during Q and 24.7M since receiving Fed approval in April. The $2.1B plan remains effective through March. A new capital plan has been submitted to Fed.
"We Continue to prefer State Street (STT). We expect State Street to stand out and reiterate its desire to deliver positive operating leverage and maximize capital returns for shareholders, and we believe sets up best in the group for 2014 on a relative basis. Bank of New York Mellon (BK) should experience a noisy quarter on the expense front with elevated legal and litigation expenses. Northern Trust (NTRS) should continue to see top-line growth given various investments in the franchise, but in this tough operating environment the focus will be on expenses - and we see most negative estimate revision risk here."
The proposed SPDR SSgA Flexible Allocation ETF will be actively managed and use State Street's (STT) proprietary tactical asset-allocation strategy to invest in a variety of asset classes, market cap ranges, and market sectors.
The fund will target a return exceeding one-month Libor by at least 4% per year over a five-year time frame.
State Street's (STT) Global Advisors unit launched the SPDR MSCI EM Beyond BRIC ETF (EMBB) this morning to meet the ever growing investor interest in underplayed emerging markets.
With an expense ratio of 0.55%, this new ETF will bypass the now crowded BRIC countries (Brazil, Russia, India and China), instead investing in developing market stocks with less outside exposure; Chile, the Czech Republic and Indonesia to name a few.
Another Beyond BRIC ETF (BBRC) was launched just over a year ago with a net expense ratio of 0.58%.
A combination of net inflows and strong markets performance pushed global ETP assets to a new record-high of $2.4T as of the end of November, according to ETFGI. Equity ETPs were where the action was, garnering $18.2B of inflows, while commodity ETPs had the largest reduction - $1.7B in outflows. Year-to-date ETP assets have risen by 21%.
Among providers, iShares (BLK) ranks first on net inflows YTD with $57.3B. Vanguard is 2nd at $55.7B, and 3rd is previously tiny WisdomTree (WETF) becoming far less tiny thanks to $13.6 of inflows (more than $9B is from DXJ alone). Next is PowerShares (IVZ) with $13.3B, and then SSgA (STT) with $11.5B (its GLD has seen major outflows this year).
Active ETFs have garnered a fair amount of press and some interesting ideas, but account for less than 1% of total ETP assets.
Moody’s cuts the senior debt ratings of Morgan Stanley (MS), Goldman Sachs (GS), JPMorgan (JPM) and BNY Mellon (BK) by one notch, based on its updated views on U.S. government support and standalone bank considerations.
The credit ratings of these banks have each benefited from the assumption of government support, Moody's says, and its rating actions reflect strengthened U.S. bank resolution tools, prompted by the Dodd-Frank Act, which affect its assumptions about U.S. government support.
Ratings for Bank of America (BAC), Citigroup (C), State Street (STT) and Wells Fargo (WFC) are left unchanged.
Levels are not advantageous but $STT is generally under-owned by individual investors. This is one of Boston's crown jewels.
View all 0 replies
STT vs. ETF Alternatives
State Street Corp provides a range of investment management strategies, investment management advisory services and other financial services for corporations, public funds and other sophisticated investors.