State Street Corp. shares plunged the most in three years after the custody bank reported that clients retreated from its investment products, and that the outflows probably aren’t over.
(Bloomberg) — State Street Corp. shares plunged the most in three years after the custody bank reported that clients retreated from its investment products, and that the outflows probably aren’t over.
The stock fell $7.35, or 9.2%, to $72.68 in New York, and traded down as much as 18%. Customers withdrew a net $26 billion from State Street’s investment products in the first quarter, the bank reported Monday — a surprisingly wide miss after analysts predicted $8 billion in inflows. A year ago, customers added a net $51 billion to State Street’s funds.
Fee revenue was down 9%, and assets under management fell 10% from a year earlier to $3.6 trillion. The company cited lower market levels at the end of the quarter as well as net outflows, but added during a conference call with analysts that its money market funds gained some ground amid a “flight to quality.”
State Street’s stock had largely escaped the turmoil that engulfed US regional banks — the shares were up 3% through last week — with analysts positive on the company in part because of the limited credit risk at custody banks.
Overall, State Street reported adjusted earnings of $1.52 a share for the three months ended in March, missing estimates of $1.64 a share, on a 1% gain in revenue from a year earlier. While the stock slid, the bank still expects to make 2023 share buybacks of as much as $4.5 billion.
The outlook for the second quarter includes some revenue growth, despite a 5% to 10% drop sequentially in net interest income as clients seek higher returns, State Street told analysts during Monday’s conference call. Deposits probably will fall “another few billion,” Chief Financial Officer Eric Aboaf said during the call.
“Clients have a fair amount of alternatives, and they’re thinking about how to deploy, how to maximize interest and yields for their own clients,” Ron O’Hanley, the bank’s chief executive officer, told analysts.
The quarter included a $29 million provision attributed to providing $1 billion of liquidity to a US financial institution, in concert with other large US banks. That matches up with efforts to support First Republic Bank, which received $30 billion of deposits from 11 lenders in March to support the struggling lender.
(Updates with closing share prices)
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