Standard & Poor's Ratings Services today said that its ratings on State Street are not affected by the company's solid second-quarter earnings, which reflect flat fee revenue and lower compensation expenses than the first quarter of 2012.
“Positively, State Street continues to exhibit good new business growth in its core asset servicing business. However, we recognize that, in coming quarters, possible volatile market valuations may continue to dampen asset servicing and asset management fees, and net interest revenue may be further hindered by very low interest rates,” said a statement from the ratings firm.
It also emphasized that State Street's ratings are also not affected by the company's announcement that it has agreed to acquire Goldman Sachs hedge fund administration business, for $550 million in cash. The acquisition would add about $200 billion in servicing assets to State Street’s hedge fund administration business.
S&P stated that the acquisition fits well into State Street business platform and growth strategy, However, it viewed the cash outlay unfavorably from a credit perspective, “especially given State Street's already aggressive, in our view, capital deployment for share repurchases.”
Total operating revenue at State Street (including a small loss on Greek investment securities) was down about 1 percent, sequentially, as asset servicing fees were flat, trading services revenue was down, and securities lending revenue was seasonally higher. Assets under custody and administration of $22.4 trillion dipped 3 percent for the quarter.
