State Street has been given a boosted rating to ‘A+’ by Fitch Ratings who also revised the firm’s rating outlook to Stable from Positive.
The ratings upgrades reflect State Street’s improved and more seasoned risk management practices and procedures, which Fitch believes will lead to more significant positive operating leverage in a higher short-term interest rate environment.
Fitch also affirmed the ratings for BNY Mellon and Northern Trust at ‘AA-‘, and Browns Brothers Harriman at ‘A+’. Outlooks for all three remained at Stable.
The high ratings for the trust banks are supported by a sound funding profile consisting mainly of core custody deposits, strong capital ratios supporting comparatively low risk balance sheets, and good asset quality metrics.
The three firms’ return on equity, amid a low interest rate and low volatility environment, has remained satisfactory from a credit perspective at around 10 percent on average. Fitch’s long-term cost of equity assumption for the trust banks is 12-15 percent.
