State Street Corporation

This is our first report on State Street, a prominent provider of asset servicing and other financial services in the U.S. The company experienced a varied market performance in the second quarter due to continued strength in developed equity markets, weakness in emerging markets, and a subdued market environment. Amid the ongoing inflation and Central Bank rate hikes, the management saw a fall in fixed income markets and decreased currency market volatility which affected the foreign exchange business. Despite these challenges, the company’s second-quarter highlights include a return on equity of 13% and pretax margin expansion to 29.5%, driven by factors like common share repurchases, increased net interest income, robust revenue growth in front office software and data, and increased securities finance revenue. State Street onboarded $1.2 trillion of Assets Under Custody/Administration (AUC/A) primarily through the State Street Alpha platform, underscoring its effectiveness. The total AUC/A grew 5% quarter-over-quarter, and more than $140 billion of asset servicing wins were recorded, largely in the Asset Owner, Official Institutions and Alternatives client segments. Its SaaS-based Charles River Development (CRD) business saw strong growth, as did the Global Advisors’ assets under management, supported by net inflows from all business lines. We initiate coverage on the stock of State Street Corporation with a ‘Hold’ rating.