Credit analysts see more rating pressure for State Street

By Ronda Fears

Nashville, Feb. 25 - CreditSights analysts view State Street Corp.'s core business as weak and expense cutting so far as not meaningful.

Thus, analysts David Hendler, Rob Haines and Brian Yelvington said in a report Tuesday that they foresee more ratings pressure for the bank.

"Apart from one-time gains, external acquisitions and positioning on the yield curve, there was relatively little growth in core earnings," the analysts said in the report.

State Street's main revenue component - servicing fees, which account for 86% of total revenues - was primarily boosted by acquisitions and some growth in new and existing customer activities, the analysts noted.

As for the other major component of revenues, the net interest spread, it was also under pressure.

The spread income could have been under more pressure had the company not taken steps to extract the benefits of a steep yield curve, the analysts said.

"While State Street has made some inroads in cost cutting, more needs to be done since costs only declined by less than 1% in 200," the analysts said.

"Under CEO Spina, the past culture of spending almost anything to generate revenues has been replaced with more practical expense management. But the company still lags its peers in efficiency ratios that still reside in the mid-70s, versus a peer average in the low 50s."

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