As the rest of the market was selling off yesterday, State Street
Playing a prominent part in the quarter, and also making the financials a bit messier than usual, was the closing of the $4.2 billion acquisition of Investors Financial Services, a fellow asset servicer and custodian. The acquisition gave State Street an additional $2.3 trillion of assets, $1.8 trillion of which is under custody.
So far, Investors Financial seems to be doing well as part of State Street -- so well, in fact, that State Street has more than cut in half the dilution it expects from the acquisition in 2007. No mention was made about what this means for 2008, but originally the deal was projected to be neutral to 2008 earnings. If things continue to go well, though, State Street may start seeing a bottom-line benefit sooner than expected.
The quarter wasn't all about getting a boost from the acquisition, though. Even without the incremental revenue from Investors Financial, State Street's revenue for the quarter was up 34% year over year. Both servicing and asset management performed well, as the company added both new customers and more assets from existing customers in both areas. Including the new assets from Investors Financial, State Street finished the quarter with $15.1 trillion in assets under custody and $2.0 trillion in assets under management, versus $11.3 trillion and $1.6 trillion last year, respectively.
For shareholders, the quarter was a welcome sight after the stock cratered in late August on fears that it was exposed to junky financial instruments through off-balance-sheet conduits. In the earnings release, CEO Ronald Logue paid homage to the company's resilience, saying, "While liquidity in the fixed income market remains challenging, our concentration in high-quality assets in our own portfolios as well as in the conduits, have limited the impact of this disruption on our business."
So the next question is whether this rising tide is lifting all boats, or whether State Street's execution is giving it an edge on competitors like The Bank of New York Mellon
More financial Foolishness:
JPMorgan is an Income Investor recommendation.
Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...