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Inside State Street's 4Q17 Results: Misses and More

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Part 3
Inside State Street's 4Q17 Results: Misses and More PART 3 OF 8

Assessing State Street’s Total Expenses in 4Q17

STT’s YoY decline in total expenses

State Street (STT) incurred total expenses of $2.13 billion in 4Q17, compared with $2.18 billion in 4Q16, which represented a 2.4% YoY (year-over-year) fall. Specifically, the company saw a decline in compensation and employee benefit expenses, from $1.09 billion in 3Q17 to $1.06 billion in 4Q17, which reflected a 2.1% fall.

Assessing State Street’s Total Expenses in 4Q17

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State Street’s information systems and communication expenses rose from $278 million in 4Q16 to $301 million in 4Q17 due to investments in Beacon and a rise in technology infrastructure expenses. These expenses showed a rise when compared with 3Q17 levels for the same reasons.

Transaction processing services

State Street’s transaction processing services expenses rose from $199 million in 4Q16 to $219 million in 4Q17, which represented a YoY rise of 10.1%. This rise was due to positive momentum in markets and the rise in client volumes. The rise in expenses over 3Q17 levels was due to the same reasons.

In 4Q17, State Street’s occupancy expenses stood at $117 million, compared with $109 million in 4Q16, reflecting a 7.3% YoY increase. This rise was mainly to investments in Beacon in order to achieve a larger global footprint.

STT’s other expenses and enterprise value in 4Q17

State Street’s other expenses declined in 4Q17 on a YoY basis on the back of lower professional services expenses. However, these expenses rose sequentially, mainly due to a rise in expenses incurred in relation to new business activities.

Notably, State Street’s enterprise value stood at -$7.65 billion. By comparison, peers (XLF) PNC Financial Services (PNC), Invesco Limited (IVZ), and SEI Investments (SEIC) have enterprise values of $127.2 billion, $19.4 billion, and $11.51 billion, respectively.

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