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State Street Corp. (STT 8.19%) saw its stock price surge on Wednesday on what was a down day on Wall Street, at least in the morning. State Street’s stock price jumped as much as 10.7% in the morning session and was up about 8.4% as of 11:30 a.m. ET to $80.60 per share.
The major indexes were down slightly on Wednesday morning, with the Nasdaq Composite down 83 points, or 0.7%; the Dow Jones Industrial Average down 72 points, or 0.2%; and the S&P 500 off 14 points, or 0.4%, as of 11:30 a.m. ET.
The market reacted favorably to the news that the custodian bank and asset manager announced that it was boosting its share repurchase plan by up to an additional $500 million this quarter, on an incremental basis. This is on top of the recently completed $1 billion stock buyback plan that was executed this quarter. When you do the math, that’s $1.5 billion of stock buybacks this quarter.
Chairman and CEO Ronald O’Hanley said the move “underscores the strength of the firm’s capital position and our confidence in our organic growth trajectory. We recognize the priority our shareholders place on capital return, and we continue to expect to use dividends and share repurchases to return significantly more capital than our medium-term target payout of 80% of earnings in 2023.”
The repurchase plan does not have specific price targets and may be suspended at any time, the company said. Buybacks have many benefits for companies, including returning money to shareholders, but it can also help boost the stock price, as fewer shares on the market may increase the value of existing shares.
State’s Street stock price is down about 13% year to date.
State Street is one of the world’s largest custodian banks. These banks safeguard and provide administrative and other services for institutional clients. It is also one of the largest money managers, as it runs the SPDR exchange-traded funds, as well as assets for pensions and other institutional investors.
This is the second time the company has made headlines in the past week or so after it announced that its deal to buy Brown Brothers Harriman’s investor services business was off. The deal had been in the works for more than a year but had been subject to regulatory delays, feedback, and restructuring.
The two sides came to the conclusion that the modified transaction structure would limit the benefits compared to initial expectations. The market has also changed dramatically since then, as M&A deals have slowed to a crawl. State Street got mostly positive feedback from analysts on nixing the deal, as many raised their price targets.
I like this stock, as custodian banking is a good, solid, steady business, and State Street is one of just a handful of major players. The asset management business will be down in negative markets, but it’s a cheap stock and has significant long-term upside when the market turns.
Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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