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State Street (STT)Stock (Financial Services Industry, Regional Banks Industry)
State Street (NYSE: STT), a world leader in financial services, provides a full range of products and services for large pools of investment assets. The Investment Servicing division, which offers custodial and other investment services to hedge funds and institutional investors, is the largest division and has over $15 trillion under custody. Clients include mutual fund companies and other investment managers, corporations, public pension funds, unions, non-profits organizations, and families and individuals. State Street also has a large Investment Management division, State Street Global Advisors, with $2 Bn under management, as well as a foreign exchange and securities lending business. The company is based in Boston, MA and has offices worldwide. State Street faced legal troubles in early 2008 when investors sued over losses in fixed-income strategies managed by State Street Global Advisors. Plaintiffs claim that State Street did not properly communicate the investment objectives of the fund. The company set aside $618 Mm for legal expenses. The incident prompted SSgA chief William Hunt to step down. He will be replaced by James Phalen. In February 2007, State Street announced the acquisition of Investor Financial Services, a rival investment servicing company for $4.5 Bn. State Street will benefit from Investor Financial Services' existing clients and the cost savings from staff and human capital consolidation. The acquisition will not add to State Street's operating earnings until 2009. 
[edit] Trends and Forces[edit] Exposure to Growth of Asset Management IndustryState Street has benefited from the growth in hedge funds, mutual funds, and other entities needing investment servicing. The hedge fund boom has resulted in a jump from US$40 billion in hedge fund assets under management in the late 80s to over US$650 billion AUM in 2003. Below is a breakdown of State Street's assets since 2003.  [edit] Consolidation in Investment Servicing IndustryAs a leader in the securities servicing industry, State Street is poised to benefit from the increasing consolidation of the industry. Fund managers have been choosing large servicing companies over local ones; this has helped the company's market share. [edit] Exposure to International GrowthState Street has benefited from the high growth of international markets. Over 25% of serviced and managed assets at State Street are from overseas. The company operates a global business that can withstand a slow US economy and thrive on international growth. The company has the largest global exposure among its competitors at 41% of total revenues. 32% at Bank of New York; 34% at Northern Trust. [edit] Adverse Market Conditions May Impact Fees but Improve Forex RevenueState Street relies on management and performance fees for revenue. Adverse market conditions in 07-08 could reduce client assets and thus State Street's fees. On the asset management side, fund performance could be negatively impacted due to weak equities. State Street has profited from these conditions in the form of higher foreign exchange revenues and better lending spreads. [edit] Exposure to Subprime through MBS & ABCPAs a result of the subprime crisis, there is concern about the State Street's exposure to Mortgage Backed Securities ("MBS") as well as Asset Backed Commercial Papers ("ABCP"). The company has $6 Bn in an MBS portfolio and over $29 Bn in an ABCP conduit. It is notable that State Street's conduits have much better ratings than those of its peers.  [edit] Market ShareState Street's services are used by:
[edit] Key Facts
[edit] CompetitionAgainst most competitors, State Street has the advantage of size. [edit] Direct Competitors[edit] Divisions of Financial ConglomeratesLooking at P/E, State Street is priced higher relative to its direct competitors. However looking at PEG tells that the competitors are priced similarly.  BK = The Bank of New York Mellon Corporation C = Citigroup Inc. NTRS = Northern Trust Corp. Data from Yahoo! Finance References
 State Street2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
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