State Street sinks after ‘low-quality’ beat

Shares of financial services company State Street (NYSE:) declined after it reported results for the second quarter of 2023. State Street beat Wall Street expectations on the bottom line, but analysts said the beat was “low quality.”

State Street earnings per share of $2.17, compared to the consensus of $2.11, and total revenue was up 5% from last year at $3.11 billion, slightly below the consensus of $3.13B. It reported net interest income growth of 18%.

Evercare ISI analysts said they expected the stock to decline following results because of relative weakness in NII and fees.

“STT posted a slight beat on a lower provision & tax rate, despite weaker-than-expected NII & fees. Lowlights were deposits down 10% mostly on NIB (though the percentage of operational was steady); NII down 10% q/q with the NIM -12bps sequentially; overall fees advancing thanks to front-office but with mgmt & servicing fees retreating; & some negative fee operating leverage,” they said.

“STT reported a headline beat mostly driven by lower tax rate and loan loss provision. STT came in on the low of end of guidance for both NII where they were down 10% q/q (vs guide of down 5-10%) on continued NIB deposit runoff and fees where they were up ~4% (vs guide of 4-4.5%) but this was primarily driven by lower multiple trading services and CRD-related fees were mostly in-line,” said Citi analysts.

KBW analysts described State Street’s performance as a “low quality beat.”

“Expect shares to be weak on the low-quality beat and all eyes will be on deposit and 2023 NII guidance,” they said.

State Street’s stock declined by over 10%, following the disappointing results.