State Street Corporation (STT) is expanding its relationship with Babson Capital Management LLC by providing investment operations and technology services. The company has already been providing custody, trustee, private equity and hedge fund services to Babson Capital since 2001.
With the expansion of its global business, the expanding relationship provides Babson Capital an opportunity to use State Street’s expertise in global operations. With the increase in complexities in the financial markets globally, the leading solutions that State Street provides for asset managers’ investment operations should help in incremental efficiencies to Babson Capital for achieving its growth objectives.
State Street, which provides services for middle office assets worth more than $6 trillion globally, should also experience its top-line benefiting from the deal. With $19 trillion in assets under custody and administration and $1.8 trillion in assets under management at June 30, 2010, State Street operates in 25 countries and more than 100 geographic markets.
State Street, which competes with companies such as The Bank of New York Mellon Corporation (BK), JPMorgan Chase & Co. (JPM) and Northern Trust Corporation (NTRS), reported second quarter 2010 operating earnings of 93 cents per share, in line with the Zacks Consensus Estimate, aided mainly by improved operating revenues. However, higher expenses were the downside.
We expect the company’s acquisition of Intesa Sanpaolo’s Securities Services and Mourant International Finance Administration business to reinforce its core asset servicing business, further supporting the top line. However, concerns persist regarding the overall economic recovery and the company’s risky investment portfolio exposure.
State Street currently carries a Zacks #4 Rank (Sell), implying a slight potential for downward pressure on the shares over the near term.
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