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Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the last reported quarter, STT’s earnings beat the Zacks Consensus Estimate. Growth in fee revenues and higher net interest income (NII) primarily aided results. Also, improvements in total assets under custody and assets under management (AUM) balances were other positives. However, higher expenses hurt the results to some extent.
State Street has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a surprise of 10.63%, on average.
The Zacks Consensus Estimate for State Street’s fourth-quarter earnings of $2.42 per share has been revised 3% upward over the past seven days. The figure implies an 18.6% rise from the year-ago quarter.
The consensus estimate for sales of $3.32 billion suggests 9.2% year-over-year growth.
Key Factors & Estimates for State Street’s Q4 Results
NII: The Federal Reserve has reduced interest rates by 100 basis points since September 2024. This is likely to have had a positive impact on STT’s NII during the fourth quarter as funding cost pressure alleviated to some extent, partially offset by lower yields on interest-earning assets. Further, the yield curve steepened and then normalized during the quarter, aiding NII through asset repricing.
The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $265.7 billion, which implies a 1.4% fall from the previous quarter. Our estimate for the metric is pegged at $251 billion.
Lending activities improved in the fourth quarter per the Fed’s latest data. These factors are expected to have supported State Street’s NII to some extent.
The Zacks Consensus Estimate for NII (on a fully taxable-equivalent or FTE basis) of $734.5 million indicates a sequential rise of 1.6%. We project NII on an FTE basis of $701.3 million.
Fee Revenues: Higher volatility and volume in foreign exchange (FX) markets are likely to have boosted State Street’s FX trading services income. Further, the dollar strengthened after the victory of Donald Trump in the presidential elections combined with interest rate cuts. This amplifies the positive impact of the high volatility to some extent. The consensus estimate for FX trading services income is pegged at $359.9 million, suggesting a 3.8% fall from the last quarter. We expect the metric to be $329.5 million.
The consensus estimate for management fees of $530.9 million implies a marginal increase on a sequential basis. The Zacks Consensus Estimate for servicing fees of $1.28 billion indicates marginal growth. Our estimates for management fees and servicing fees are $504.2 million and $1.24 billion, respectively.
The consensus estimate for software and processing fees suggests a 12.8% increase to $234.6 million. Our estimate for the same is $241 million.
On the other hand, the Zacks Consensus Estimate for securities finance revenues of $110.1 million suggests a 5.1% decline. Our estimate for the same is $208.5 billion.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.6 billion indicates a 1.5% decline from the prior quarter. We project the metric to be $2.46 billion.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have increased operating expenses in the fourth quarter.
Further, management’s efforts to streamline its business model to enhance its operating efficiency are expected to have increased expenses.
We anticipate total adjusted non-interest expenses to be $2.31 billion.
STT’s Outlook for 2024
Management expects to achieve $350-$400 million of servicing fee sales in 2024.
Management anticipates total fee revenues to be at or slightly above the higher end of the 4-5% range, driven by a solid start to the year and higher average market levels.
Management projects both servicing fees and management fees to increase on the back of steady business momentum and higher market levels.
NII is estimated to grow 4-5% given the continued benefits from the management actions taken to support NII.
The average deposit balance is expected to remain at the second-quarter 2024 level in the second half of the year.
Management anticipates adjusted expenses to be up roughly 3.5% due to projected rise in revenue-related costs because of improved top-line expectations.
The company expects common equity tier 1 and Tier 1 leverage ratios to be 10-11% and 5.25-5.75%, respectively.
What the Zacks Model Reveals for STT
As per our model, the likelihood of State Street beating the Zacks Consensus Estimate is high this time around. This is because the company has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for State Street is +0.67%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Other Banks Worth a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:
The Earnings ESP for First Horizon Corporation (FHN - Free Report) is +3.18% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report fourth-quarter and full-year 2024 results on Jan. 16.
Over the past seven days, the Zacks Consensus Estimate for FHN’s quarterly earnings has remained unchanged at 38 cents.
Image: Bigstock
NII to Aid STT's Q4 Earnings, Lower Fee Revenues & High Costs to Hurt
State Street (STT - Free Report) is slated to announce fourth-quarter and full-year 2024 results on Jan. 17, before the opening bell. The company’s revenues and earnings are expected to have increased year over year.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the last reported quarter, STT’s earnings beat the Zacks Consensus Estimate. Growth in fee revenues and higher net interest income (NII) primarily aided results. Also, improvements in total assets under custody and assets under management (AUM) balances were other positives. However, higher expenses hurt the results to some extent.
State Street has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a surprise of 10.63%, on average.
State Street Corporation Price and EPS Surprise
State Street Corporation price-eps-surprise | State Street Corporation Quote
The Zacks Consensus Estimate for State Street’s fourth-quarter earnings of $2.42 per share has been revised 3% upward over the past seven days. The figure implies an 18.6% rise from the year-ago quarter.
The consensus estimate for sales of $3.32 billion suggests 9.2% year-over-year growth.
Key Factors & Estimates for State Street’s Q4 Results
NII: The Federal Reserve has reduced interest rates by 100 basis points since September 2024. This is likely to have had a positive impact on STT’s NII during the fourth quarter as funding cost pressure alleviated to some extent, partially offset by lower yields on interest-earning assets. Further, the yield curve steepened and then normalized during the quarter, aiding NII through asset repricing.
The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $265.7 billion, which implies a 1.4% fall from the previous quarter. Our estimate for the metric is pegged at $251 billion.
Lending activities improved in the fourth quarter per the Fed’s latest data. These factors are expected to have supported State Street’s NII to some extent.
The Zacks Consensus Estimate for NII (on a fully taxable-equivalent or FTE basis) of $734.5 million indicates a sequential rise of 1.6%. We project NII on an FTE basis of $701.3 million.
Fee Revenues: Higher volatility and volume in foreign exchange (FX) markets are likely to have boosted State Street’s FX trading services income. Further, the dollar strengthened after the victory of Donald Trump in the presidential elections combined with interest rate cuts. This amplifies the positive impact of the high volatility to some extent. The consensus estimate for FX trading services income is pegged at $359.9 million, suggesting a 3.8% fall from the last quarter. We expect the metric to be $329.5 million.
The consensus estimate for management fees of $530.9 million implies a marginal increase on a sequential basis. The Zacks Consensus Estimate for servicing fees of $1.28 billion indicates marginal growth. Our estimates for management fees and servicing fees are $504.2 million and $1.24 billion, respectively.
The consensus estimate for software and processing fees suggests a 12.8% increase to $234.6 million. Our estimate for the same is $241 million.
On the other hand, the Zacks Consensus Estimate for securities finance revenues of $110.1 million suggests a 5.1% decline. Our estimate for the same is $208.5 billion.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.6 billion indicates a 1.5% decline from the prior quarter. We project the metric to be $2.46 billion.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have increased operating expenses in the fourth quarter.
Further, management’s efforts to streamline its business model to enhance its operating efficiency are expected to have increased expenses.
We anticipate total adjusted non-interest expenses to be $2.31 billion.
STT’s Outlook for 2024
Management expects to achieve $350-$400 million of servicing fee sales in 2024.
Management anticipates total fee revenues to be at or slightly above the higher end of the 4-5% range, driven by a solid start to the year and higher average market levels.
Management projects both servicing fees and management fees to increase on the back of steady business momentum and higher market levels.
NII is estimated to grow 4-5% given the continued benefits from the management actions taken to support NII.
The average deposit balance is expected to remain at the second-quarter 2024 level in the second half of the year.
Management anticipates adjusted expenses to be up roughly 3.5% due to projected rise in revenue-related costs because of improved top-line expectations.
The company expects common equity tier 1 and Tier 1 leverage ratios to be 10-11% and 5.25-5.75%, respectively.
What the Zacks Model Reveals for STT
As per our model, the likelihood of State Street beating the Zacks Consensus Estimate is high this time around. This is because the company has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for State Street is +0.67%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Other Banks Worth a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:
The Earnings ESP for First Horizon Corporation (FHN - Free Report) is +3.18% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report fourth-quarter and full-year 2024 results on Jan. 16.
Over the past seven days, the Zacks Consensus Estimate for FHN’s quarterly earnings has remained unchanged at 38 cents.
Regions Financial Corporation (RF - Free Report) is scheduled to release fourth-quarter and full-year 2024 earnings on Jan. 17. The company carries a Zacks Rank #3 at present and has an Earnings ESP of +0.61%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Quarterly earnings estimates for RF have remained unchanged at 55 cents over the past week.