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State Street Balance Sheet Is Strong on Acquisitions, Assets

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State Street’s leverage 

State Street has deployed debt for the expansion of business organically as well as inorganically. It has maintained a long-term debt-to-equity ratio of 0.50x–0.60x.

As of 3Q16, State Street (STT) reported total assets of $256.0 billion, which was 3.6% higher than $247.0 billion in 3Q15. The rise was attributed to a rise in valuations of holdings, gathering of assets toward ETFs, and the acquisition of GE Asset Management. Shareholder equity rose to $22.2 billion compared to $21.4 billion in 3Q15.

State Street’s ability to expand operations by generating operating flows and expense management should help improve its balance sheet. The company posted an operating margin of 23.9% in 2015 compared to its competitors, who reported the following operating margins:

  • BlackRock (BLK): 23.9%
  • JPMorgan Chase (JPM): 31.6%
  • Bank of New York Mellon (BK): 22.7%

Together, these companies form 1.8% of the SPDR S&P 500 ETF (SPY).

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Improving asset quality

State Street’s common equity Tier 1 ratios in 3Q16, under both the Basel III fully phased advanced and standardized approaches, were 12.3% and 12.5%, respectively. That’s more than the previous quarter, mainly due to lower risk-weighted assets.

The supplementary leverage ratio was about 6.3% on a fully phased-in basis. That positioned the company well for a long-term capital plan of returning capital to shareholders.

On a fully phased-in basis, the company’s estimated pro forma Basel III common equity Tier 1 ratios as of September 30, 2016, were 11.8% and 12.0%, respectively. They were calculated under the advanced and standardized approaches.

State Street’s long-term debt has fallen 1.0% to $11.8 billion in 3Q16 from $11.9 billion in 2Q16. Its long-term debt-to-equity ratio fell to 53.0% compared to 54.0% in 2Q16. State Street is deploying resources for restructuring and expansion, funded partially by long-term debt.

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