State Street shares rally on termination of BBH Investor Services acquisition

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State Street (NYSE:STT) announced Wednesday that it has reached an agreement with Brown Brothers Harriman & Co. (BBH) to terminate its proposed acquisition of BBH’s Investor Services business.

Financial services firm State Street explained that based on regulatory feedback and potential transaction modifications to address the feedback, it has determined that the deal was becoming increasingly complex and presented an additional operational risk, limiting the anticipated transaction benefits.

Following the news, Morgan Stanley analysts said a relief rally is likely ahead for State Street.

“While the original deal was valued at $3.5B (~300bps to CET1), we expect future earnings less dividends to enable a total of $5B of buybacks from 4Q22-4Q23, or ~$1B per quarter. This is the fastest pace we think STT can do given average daily trading volume limitations and would reflect a continuation of the $1B pace previously announced for 4Q22,” wrote the analysts.

“Given previous increasing deal uncertainties, we already took out the deal from our model post 3Q22 earnings, resulting in an incremental $2.4B of buybacks in our model vs consensus in 2023 (MS $4B, Cons $1.6B, 8% to EPS) and another incremental $0.4B in 2024 (MS $2.5B, Cons $2.1B, cumulative 14% to EPS). Original deal earnings ex synergies should remove a similar 13-14% to operating earnings.”

State Street shares jumped at the open. At the time of writing, they are up just under 5% at $77.57 per share.