What happened
Shares of large custodian bank State Street (STT -0.13%) traded more than 13% lower as of 10:29 a.m. ET today. The company reported earnings results for the first quarter of the year earlier this morning.
So what
State Street reported diluted earnings per share of $1.52 on total revenue of roughly $3.1 billion. Earnings, which are down 20% from the prior quarter, missed analyst estimates, while revenue was roughly in line with estimates.
The main culprit behind the miss was a drop in fee revenue, which fell 1% in the quarter and was down 9% year over year.
The slide in fee revenue was due to lower market levels, lower foreign exchange trading fees, and a drop in fees from front-office software and data services. Software and processing fees fell 18%, while management fees fell 12%.
"Our first-quarter results reflect the resiliency of our business model, notwithstanding continued interest rate increases and subsequent significant market movements, volatility and disruption within other parts of the banking industry," State Street CEO Ron O'Hanley said in an earnings statement.
Yes, there was a drop in fee revenue, which is State Street's largest revenue source. But net interest income, which is the money banks make on loans and securities after funding those assets, was up 50% year over year. State Street also took a $44 million provision for credit losses, largely tied to the bank's liquidity assistance to First Republic.
Now what
The earnings miss was certainly disappointing, and it wasn't great to see net asset outflows, either. But the bank still expects to buy back $4.5 billion of stock this year, and State Street remains one of the largest custodians in the world. I'd rate the stock as a hold right now.
