In the wake of State Street Corporation‘s (STT) Q2 2012 earnings results, we published reports expressing our concern that State Street was still perceived as being on a deal-crazed buyout binge. We believe that the company is still an undervalued industry leader in the asset management and administration industry and we can see why Nelson Peltz of Trian Fund Management has a bigger position in it versus Legg Mason (LM) or Lazard (LAZ) – Trian’s other asset manager holdings.
We also believe that the most important strategic initiative for State Street with regards to utilizing shareholder capital should be to complete its $1.8B buyback. While State Street repurchased more shares than Bank of New York Mellon (BK) and Northern Trust (NTRS) combined in Q2 2012, BNY Mellon and NTRS’s management have not been bringing up acquisitions at the conference calls of those respective companies.
After reviewing STT’s presentation at the Barclays Financial Services Conference, we have softened our recent constructive criticism of STT’s management because we see that STT’s management has seen the light in regards to effective capital management versus acquisitions.
State Street’s Repurchase Program
State Street had presented Tuesday, September 11, at the Barclays Capital Global Financial Services Conference. We were disappointed that on page 4 of the presentation, the company mentioned Acquisition Strategy; in the presentation, however, it did not talk about them further on the slides. We were consoled that STT’s management intended to at least maintain its level of dividend growth and share repurchases when it undergoes the 2013 edition of the Federal Reserve CCAR Stress Test.
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