State Street Earnings: Net Interest Income Disappoints as Deposits Decline

Wide-moat-rated State Street reported an uninspiring quarter with revenue of $3.10 billion and adjusted EPS of $1.52 falling short of the FactSet consensus estimates of $3.12 billion and $1.64, respectively. Net interest income of $766 million was down 3% sequentially, which was worse than flat guidance as deposits, particularly non-interest-bearing deposits, declined. State Street’s asset manager and asset owner base are sophisticated, and we view State Street’s challenges monetizing deposits as a form of pricing pressure and our rationale for a negative moat trend rating. We view this quarter as a reminder that deposit trends, particularly for non-interest-bearing deposits, can be choppy for the custody banks. As we trim our net interest income forecasts, we are reducing our fair value estimate on State Street’s shares to $80 from $90.