State Street a great street again

After a bad turn on its own investment portfolio, State Street returns to a business model that works.

By Jim J. Jubak Dec 23, 2009 2:17PM

Jim JubakJubak Picks 50 portfolio member State Street (STT) is gradually finding its way back to its core business of collecting fees for managing assets that belong to others and away from an ill-fated build up of its own investment portfolio.


At the height of that past strategy, State Street's investment portfolio had climbed to 50% of total assets, according to Morningstar. 


That strategy rested on a base of cash raised in the short-term markets, was sometimes invested in complex instruments that carried more risk than advertised, and led the company into using off-balance-sheet accounting gimmicks to diminish reported risk.

It all blew up on State Street during the global financial crisis. And as a result, the company has spent several quarters rebuilding its capital through a $1.5-billion equity offering, moving $23 billion in assets back onto its balance sheet, and setting aside $618 million in reserves to cover investor lawsuits.


But as I wrote in my Dec. 15 post, the financial companies that now show the most promise as investments are those reformed sinners who came out of the crisis not undamaged, but just less damaged than competitors. 


That reformed-sinner status has let State Street go back on the acquisition trail picking up fee-paying assets from more damaged competitors. In its most recent deal, State Street has bought the securities custody unit -- that's a business that holds securities for other investors -- of Intesa Sanpaolo for about $2.5 billion.


The Intesa unit manages about $525 billion in assets. That's about a 28th of the assets that State Street administers, but the deal for a unit with a leading presence in Italy and a good chunk of business in Luxembourg continues State Street's recent strategy of increasing its business outside the U.S. to 50% of revenue over time.


I think deals like this mark a strategic change for the better. You can see the improvement reflected in State Street's credit rating. On Dec. 22, Fitch Ratings raised the individual and preferred stock ratings of State Street to B/C from C and raised the preferred stock rating of State Street's trust preferred subsidiaries to BBB+ from BBB.


At the time of this writing, Jim Jubak did not own or control shares of any company mentioned in this post.

Jim Jubak's blog and commentary will resume January 4th 
 
 

 

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

105
105 rated 1
271
271 rated 2
420
420 rated 3
633
633 rated 4
492
492 rated 5
532
532 rated 6
725
725 rated 7
515
515 rated 8
343
343 rated 9
140
140 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
SWNSOUTHWESTERN ENERGY COMPANY10
TAT&T Inc9
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.