State Street Earnings: Lower Deposits and Higher Funding Costs Weigh on Net Interest Income

Wide moat-rated State Street reported an OK second quarter, with revenue of $3.11 billion and adjusted EPS of $2.17 compared with the FactSet consensus of $3.14 billion and $2.10 respectively. Net interest income was down 10% sequentially, which was on the low end of the firm's 5%-10% outlook. The culprit was primarily higher funding costs on deposits, though average deposits also declined 1% sequentially. These trends show no signs of slowing down and, as a result, State Street expects net interest income to decline 12%-18% sequentially in the third quarter and then another sequential decline of 2%-6% in the fourth quarter.