Having exited his holdings in State Street (STT +0.2%) late last year, Nelson Peltz has set his sights on Bank of New York Mellon (BK +3.8%), with his Trian Fund Management disclosing a 9.33M share stake in the company.
Partly in response to pressure from Peltz, State Street is perceived to have been more aggressive than Mellon Bank in cutting costs, selling off non-core units, and in prioritizing capital returns over acquisitions. The stocks of the two companies, however, are each up about the same amount since Peltz began pushing for change at State Street in late 2011.
Bank of New York (BK +2.1%), State Street (STT +2.4%), and Northern Trust (NTRS +2.7%) are all moving sharply higher in lockstep as the Fed begins its 2-day policy meeting.
Earnings at all three have been weighed down by ZIRP, and with new "dots" (representing the timing of rate hikes) coming from the FOMC tomorrow, perhaps the trio are anticipating a more hawkish view. Following a fast CPI report earlier today, the 10-year Treasury yield is higher by four basis points to 2.64% and the first Fed rate hike is priced in for Spring 2015.
BNY Mellon (BK +0.6%) lags the market and its trust bank competitors State Street (STT +2.1%) and Northern Trust (NTRS +2.5%) after Q3 results (from BK and NTRS) this morning.
Mellon's adjusted net income of $706M was off about 2% from a year ago, with revenue off 7%. Assets under custody of $27.4T gained 4%. Foreign exchange fees of $160M fell 12%. Net interest revenue of $772M rose 3%, though NIM fell 4 basis points to 1.16%.
Northern Trust adjusted net income of $173.9M was off 2.7% Y/Y, with revenue up 8%. Assets under custody of $5.2T rose 10%. Noninterest income (77% of total) rose 11%. Trust, investment, and other servicing fees rose 8%. Foreign exchange income of $62.8M rose 43%. Net interest income of $244.8M fell 5% as net interest margin declined 7 basis points to 1.14%.
Northern Trust (NTRS -2.9%) slips after missing earnings expectations, with Guggenheim's Marty Mosby pinning the blame on higher-than-anticipated expenses, particularly compensation which rose 4% Y/Y as staffing levels increased 3%. Larger rivals BNY Mellon (BK +2.7%) and State Street (STT +1.5%) have been more successful cutting costs amid barely visible interest rates.
More on State Street (STT +6.4%) Q4 earnings: It's a tale of two custodial banks as State Street continues its recent divergence from BNY Mellon. Net interest margin of 1.36% vs. 1.44% in Q3, 1.40% a year ago (BK declined 18 bps Y/Y to 1.09%). The firm continues cutting costs, announcing 630 job cuts in its SEC filing.
Moving lower in a mostly green financial sector is BNY Mellon (BK -2.8%) after its earnings report. Net interest margin wasn't pretty - declining to 1.09% from 1.20% in Q3 and 1.27% a year ago. No longer able to gouge customers on fx transactions, a custodial bank like BNY can't do a whole lot to offset declining margins. The good news: AUM posted a 10% rise. Someday ZIRP will end. State Street (STT) -1.4%.
State Street (STT -7.1%) in a bad state following its earnings miss and after it said that would make further cost cuts at its capital-markets ops due to what it expects to be continued weakenss in global markets. Shares are down despite operating profit rising 4.4% to $454M.
UBS names State Street (STT +2.4%) as its top pick in its trust bank coverage, starting coverage with a Buy rating and $46 price target. STT has more near-term positive catalysts and is best-positioned among the group to withstand the current environment, UBS says. Also initiated at Buy: USB, BBT, STI.
Morgan Stanley cuts its outlook and price targets on big U.S. banks, citing economic concerns in the U.S. and Europe. Most notably, it cuts Citigroup (C +5.8%) to Equal Weight from Overweight and trims its price target to $30 from $45. Cut to Underweight: STT +1.7%, BK +1.4%, NTRS +1.4%. But for today at least, bank stocks (XLF +3%) are rallying.
State Street (STT -3.3%) underperforms the market today after Suntrust cut its rating on the stock to Neutral from Buy, citing valuation. The stock has been on a tear recently, up nearly 40% since early October.
Speculation swirls around who ultimately will pick up the pieces of MF Global (MF -2.8%). WSJ lists Goldman Sachs (GS), State Street (STT) and Macquarie as potential bidders for all or parts. NY Post says CEO Jon Corzine asked Barclays (BCS) about a deal, but that it is unlikely to come through. Any move could happen fast, given MF's loss of some customer assets and declining stock price.
State Street (STT +9.8%) is off to the races following its Q3 beat. Goldman is reiterating a buy on the money manager, noting its "core" EPS came in $.04 above Street forecasts. Jefferies (Hold) is a little more guarded, believing "negative EPS revision risk" exists, given State Street's current EPS run rate. (transcript)
Keefe, Bruyette raises First Commonwealth (FCF +3.5%) to outperform on price weakness, saying the bank will likely continue to deal with additional credit costs in the near term, but its capital reserve is strong enough to handle any credit problems.
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