State Street Corporation (STT) has decided to take up few cost-cutting measures to improve profitability since it is expecting pressure on revenue growth in the future. This was one of the many announcements made by CEO Jay Hooley at the Barclays PLC’s (BCS) investor Conference on September 11, 2012.
Revenue growth is expected to be limited mainly due to the poor performances of the capital markets across the globe. For that reason, management has taken up such measures vigorously in order to perk up profit margins.
Further, the company expects to drive the organic growth to a higher level through innovative activities such as increasing the Exchange Traded Fund offerings, enhancing investment managerial operations outsourcing, boosting derivatives clearing and collateral initiatives as well as creating new data and information-oriented services.
To control the escalating expenses, management is striving hard to timely complete its Information Technology Transformation program by 2014. This program is designed to rationalize the company’s technology infrastructure and generate around $600 million in pre-tax savings by 2015. Further, management expects to trim its workforce in the IT sector by eliminating employees who do not work directly with the clients. Moreover, it remains focused on controlling other expenses.
The various initiatives announced by the State Street management have the potential to drive its overall business performance upwards and boost investors’ confidence in the stock. However, despite these efforts, it would be difficult for the company to fully negate the effects of low interest rate environment and the stringent regulatory landscape.
State Street currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.
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