(Recasts paragraph 1 with details on NII, adds analyst comment in paragraph 4) By Ateev Bhandari Oct 17 (Reuters) – State Street's net interest income missed Wall Street estimates, sending the custodian bank's shares down 5% on Friday, overshadowing the higher fees it reported in the third quarter. While the majority of a custodian bank's fees is tied to the value of assets it holds and services, interest income is more reliant on its borrowing costs and portfolio mix. The bank earned higher fees as soaring markets boosted the value of its assets. Easing interest rates and AI-fueled bullish sentiments propelled major U.S. indices to multiple record highs during the quarter. Truist Securites analysts wrote in a note that investors are weighing "market-driven positive fee trends" against "disappointing NII". The fall in net interest income was due to lower average short-term interest rates and a shift in its deposit mix. NII – the difference between what is paid out on liabilities and earned on assets – fell 1% to $715 million in the quarter ended September 30, missing analysts' expectations of nearly $749.3 million. Meanwhile, total fees rose 9%, as the the bank's assets under custody and administration rose 10% to a record $51.7 trillion from a year earlier. State Street's servicing fees rose 7.2% to $1.36, while its management fees jumped 16.1%. It reported a profit of $861 million, or $2.78 per share, up from $730 million, or $2.26 per share a year earlier, compared with analysts' estimate of $2.64 per share, according to data compiled by LSEG. Larger peer BNY also reported a higher profit on Thursday, helped by fee growth. State Street's expenses rose 5.5% to $2.43 billion in the quarter, as the company spent $517 million on information systems and communications, up 11.7% from the year-ago period. (Reporting by Ateev Bhandari in Bengaluru; Editing by Shinjini Ganguli)
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