Having tackled most of the other large players in the financial custodial services business, such as Mellon
For those not familiar with this business, State Street provides a wide array of services and management tasks for companies involved in financial services. That means handling asset custody, pricing mutual funds, lending securities, engaging in mutual fund accounting and trading services, and so on. It may not seem like the most exciting business around, but it certainly benefits from rising trading volumes and the proliferation of asset managers.
State Street reported that fourth-quarter revenue rose 10% while net income jumped 35%. Servicing and management fees rose 12% and 28%, respectively, and the company posted a 7% rise in assets under custody. Elsewhere, trading services revenue was up 13%, securities finance revenue rose 26%, and net interest income climbed 10%.
Interestingly, the bank was able to post a slight sequential improvement in its net interest margin. The reason I say that's interesting is that State Street gets a lot of its funding, in the form of deposits, from overseas, and those rates have been rising recently. That said, the company has been actively working to alter its balance sheet to produce a better margin, and it seems to be working -- though whether the company will achieve its long-range goals is still yet to be seen.
I do like the general environment for these "back-office banks," and I think that the ongoing global growth of professional asset management is a safe bet. Fortunately, State Street already has a sizable international presence. That said, I don't see enough in State Street to pay so much more for this stock relative to others, such as Mellon and BONY. After all, those other two have higher returns on equity and seem to be growing their custodial asset bases faster. Consequently, I think I'd look at those two rivals before considering State Street for an investment.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).