Spread income growth drives record quarterly revenue for State Street

State Street Chairman and CEO Ron O’Hanley termed 2022 “an unpredictable year,” though his bank posted record revenue in the fourth quarter.

Scott Eisen/Bloomberg

Custody giant State Street Corp. closed out what Chairman and CEO Ron O’Hanley termed “an unpredictable year” on a strong note, generating record revenue of $3.2 billion for the fourth quarter.   

Though financial market turbulence caused State Street’s fee income to fall 6% year over year, that was more than offset by a big jump in net interest income, which was buoyed by rising interest rates. Bottom line, the $317 billion-asset Boston-based State Street reported fourth-quarter net income totaling $733 million, up 5% from the comparable period in 2021. 

State Street reported its results Friday. At the same time, the Boston-based company unveiled a $4.5 billion-asset share repurchase authorization that “reinforces our confidence in the earnings generating power of the franchise,” O’Hanley said in a press release.

State Street finished 2022 with a solid pipeline of new custody and administration business totaling $3.6 billion which it expects to onboard in 2023. For all of 2022, however, assets under custody and administration fell 16% year-over-year to $36.4 trillion, as market turbulence and geopolitical uncertainty took a toll. Assets under management also experienced a 16% annual dropoff, to $3.5 trillion. 

Those numbers were in line with rival BNY Mellon, which also reported annual declines in assets under custody and management. 

One bright spot in an otherwise choppy year for State Street’s fee-based businesses came from software and data processing income, which jumped 28% year-over-year to $159 million. Those results highlighted State Street’s growth as a data and technology services provider. 

“What I think I’ve been pleased with, especially this year, which has been all over the place economically and politically, software and data continues to grow in this double-digit range through thick and thin,” Chief Financial Officer Eric Aboaf said Friday on a conference call with analysts. 

State Street expects strong software and data processing growth to continue into 2023, helping deliver projected fee income growth of 1%. The company is also forecasting continued high interest rates and another year of strong net-interest-income growth.  

Investors and investment analysts seemed satisfied with State Street’s results. Analyst Ken Usdin, who covers the company for Jeffries, reiterated his buy rating. Gerard Cassidy at RBC Capital Markets characterized the fourth-quarter numbers as “better than expected,” adding that the repurchase authorization would “lend support to the stock price.”

State Street shares were trading up more than 4% at $83.94 Friday afternoon. 

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