State Street Shares Decline on Gloomy Outlook for Fee Income

(Bloomberg) -- State Street Corp. shares fell 4.4 percent after the company reported a drop in fee income and warned that conditions remain challenging.

Fees, which represent the bulk of revenue, slid 6.4 percent to $2.26 billion. The decline contributed to a 23 percent plunge in profit for the period, the company said Tuesday in a statement.

“Our performance this quarter reflects the continued challenging conditions in the industry as well as lower client activity,” Chief Executive Officer Ronald O’Hanley said in the statement.

O’Hanley took over as CEO at the beginning of this year and is reorganizing the money-management and custody-banking giant after its shares lost more than a third of their value last year. While custody banking has always run on thin margins, fees across the asset-management industry face growing pressure as investors shift cash from active to passive funds, often shopping for the cheapest products.

Read about Bank of New York Mellon Corp.’s challenging revenue outlook

The bank expects fee revenue to be flat to up 1 percent in the second quarter, compared with the first three months of 2019, Chief Financial Officer Eric Aboaf said on a call with analysts.

State Street is responding to the pressure by focusing on cost cuts. Expenses fell about 2 percent in the first quarter, excluding seasonal and acquisition-related costs.

Shares of the Boston-based company dropped to $66.86 on Tuesday, paring this year’s gain to 6 percent. They had fallen as much as 7.5 percent earlier in the day.

“State Street is struggling to enhance profitability despite cost cuts, against a backdrop of challenging revenue growth,” Paul Gulberg, an analyst at Bloomberg Intelligence, said in a note. “Expense controls are at the forefront, including job reductions through automation.”

Net interest income increased 4.7 percent to $673 million as the bank benefited from higher U.S. interest rates. Aboaf said the figure may fall as much as 2 percent in the second quarter due to expectations interest rates will stay lower for longer.

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