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State Street’s Investment Servicing Division: What’s Ahead?

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Investment Servicing division

The Investment Servicing division of State Street Corporation (STT) has ra YoY (year-over-year) increase of 4.0% in total fee revenues. This increase was primarily due to a 10.0% YoY increase in its servicing fees.

In the first quarter, the division’s servicing fees comprised 76.3% of the company’s total fee revenues. A rise in the division’s assets under custody and administration (or AUCA) is expected to boost its servicing fees.

In the first quarter, State Street Corporation’s AUCA rose 12.0% YoY. In the second quarter, it expects to see a marginal rise in its Investment Servicing division’s AUCA sequentially due to the market’s improved performance.

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What’s expected in H2 2018?

In the first quarter, State Street’s Investment Servicing division garnered net interest income of $663.0 million for a YoY increase of 30.0%. During this period, the division’s net interest income accounted for 26.2% of its total revenues.

The Investment Servicing division’s net interest income primarily depends on interest rates. The Federal Reserve has indicated that it could implement two more interest rate hikes in 2018, which could boost the division’s net interest income.

A significant factor that could reduce the pace of these interest rate hikes is the ongoing tension in the global trade environment. These trade tensions could impact the inflows in equities, which could adversely affect asset managers (XLF) such as BlackRock (BLK) and Invesco Limited (IVZ).

However, T. Rowe Price Group (TROW) could see positive momentum in its fixed income and money market instruments. The performance of State Street’s Investment Servicing division also depends on its trading services revenues, which typically increase as volatility rises.

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