Can STT Overcome Lower NII, Fee Revenue and Cost Woes in Q1 Earnings?

State Street STT is slated to report first-quarter 2025 results on April 17, before the opening bell. The company’s revenues and earnings are expected to have increased year over year.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.In the last reported quarter, STT’s earnings beat the Zacks Consensus Estimate. Growth in fee revenues and higher net interest income (NII) primarily aided results. Also, improvements in total assets under custody and assets under management (AUM) balances were other positives. However, higher expenses were a headwind.State Street has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a surprise of 9.31%, on average.State Street Corporation Price and EPS Surprise State Street Corporation price-eps-surprise | State Street Corporation QuoteThe Zacks Consensus Estimate for State Street’s first-quarter earnings of $1.99 per share has been revised marginally upward over the past seven days. The figure implies a 17.8% rise from the year-ago quarter. The consensus estimate for sales of $3.30 billion suggests 5.2% year-over-year growth.Key Factors to Influence State Street’s Q1 ResultsNII: The Federal Reserve kept interest rates unchanged at 4.25%-4.5% in the first quarter of 2025 amid sticky inflation and the impact of Trump’s tariff on the economy. This is likely to have had a positive impact on STT’s NII, given relatively higher yields on interest-earning assets, partially offset by higher funding costs. Further, the yield curve steepened during the quarter due to economic uncertainties, aiding NII through asset repricing. The Zacks Consensus Estimate for average interest-earning assets is pegged at $274.4 billion, which implies a 1.5% fall from the previous quarter. Our estimate for the metric is pegged at $262.6 billion.Further, a cautious approach regarding future rate cuts by the Fed and a challenging operating backdrop are likely to have dampened the overall lending scenario. Lending activities were decent in the first two months of the quarter per the Fed’s latest data. This is likely to have supported State Street’s NII to some extent.The Zacks Consensus Estimate for NII (on a fully taxable-equivalent or FTE basis) of $730.1 million indicates a sequential decline of 2.5%. We project NII on an FTE basis of $715.2 million.Fee Revenues: Higher volatility and volume in foreign exchange (FX) markets are likely to have boosted State Street’s FX trading services income. Also, higher-for-longer interest rates and concerns regarding a potential trade war, given Donald Trump’s tariff policies, weakened the dollar. This nullified the positive impact of the high volatility to some extent. The consensus estimate for FX trading services income is pegged at $372.6 million, suggesting a 3.5% sequential rise. We expect the metric to be $350.9 million.On the other hand, the consensus estimate for management fees of $549.7 million implies a 4.6% decline on a sequential basis. Further, the Zacks Consensus Estimate for servicing fees of $1.26 billion indicates a 1.6% fall from the prior quarter. Our estimates for management fees and servicing fees are $532 million and $1.26 billion, respectively.The consensus estimate for software and processing fees suggests a 14.7% decrease to $220.9 million. Our estimate for the same is $222.2 million.Moreover, the Zacks Consensus Estimate for securities finance revenues of $108.4 million suggests an 8.2% decline. Our estimate for the same is $109.6 million.Overall, the Zacks Consensus Estimate for total fee revenues of $2.6 billion indicates a 3.3% decline from the prior quarter. We project the metric to be $2.54 billion.Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have increased operating expenses in the first quarter.Further, management’s efforts to streamline its business model to enhance its operating efficiency are expected to have led to a rise in expenses related to restructuring.We anticipate total adjusted non-interest expenses to be $2.47 billion, up 3.6% from the prior quarter.Major Developments for State Street in Q1Mizuho Financial Acquisition: In February, State Street agreed to acquire global custody and related businesses from Mizuho Financial Group, Inc. MFG outside of Japan. The financial details of the transaction have not been disclosed.The deal is anticipated to be completed by the fourth quarter of 2025 and is subject to requisite regulatory and other customary closing approvals.Following the completion of the deal, State Street will partner with Mizuho Financial to support its Japanese clients with global custody and related services. Meanwhile, Mizuho Financial will continue to offer trust and custody services for domestic assets within Japan, capitalizing on its expertise and network.IFDS Joint Venture Restructuring: In February, STT announced a restructuring of the nearly 20-year-old European component of the International Financial Data Services (IFDS) LP joint venture (JV) arrangement in Luxembourg and Ireland with SS&C Technologies Holdings, Inc.Under the plan, transfer agency services offered by IFDS in Ireland and Luxembourg will be integrated into the operations of their respective organizations. The restructuring is expected to be completed during the second half of 2025, subject to customary approvals.IFDS Canada, the JV operating in the North American region, remains immune to this restructuring move.What the Zacks Model Reveals for STTAs per our model, the likelihood of State Street beating the Zacks Consensus Estimate is high this time around. This is because the company has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.Earnings ESP: The Earnings ESP for State Street is +0.45%.Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Other Banks Worth a LookHere are a couple of other bank stocks that you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat this time:The Earnings ESP for First Horizon Corporation FHN is +3.80% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2025 results on April 16.Over the past seven days, the Zacks Consensus Estimate for FHN’s quarterly earnings has remained unchanged at 40 cents.Truist Financial TFC is scheduled to announce first-quarter 2025 results on April 17. The company carries a Zacks Rank #3 at present and has an Earnings ESP of +0.15%. Quarterly earnings estimates for TFC have been revised 1.1% lower to 86 cents over the past week.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report State Street Corporation (STT): Free Stock Analysis Report First Horizon Corporation (FHN): Free Stock Analysis Report Mizuho Financial Group, Inc. (MFG): Free Stock Analysis Report Truist Financial Corporation (TFC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks