Citi Likes Possible State Street Deal (STT)

Citi Investment Research is out with a research report on talks that State Street STT may acquire Bank of Ireland Asset Management after a competing bid dropped. It rates shares at Buy/Medium Risk and has a $60 price target. In a note to clients, Citi writes, "We believe the acquisition would be a positive and builds on our Buy thesis that STT has excess capital to deploy through M&A, increased dividends, or share repurchases, and that will be a driver of earnings growth and higher returns going forward." It goes on to say, "STT primarily has been a passive asset manager and a leader in the ETF business but has recently noted intent to expand actively managed assets which generate higher fees. BIAM is primarily an active manager, although STT has had an alliance with BIAM to provide passive investment management services since 2001, and BIAM had reported AUM of over $12 bln in these services with STT in early 2008. Also, the move supports the company’s initiative to grow globally and the location is not surprising following two other European acquisitions this year (Mourant and Intesa). As of June 30th, STT had $1.8T in AUM of which only 5% were in actively managed funds." Shares of State Street Corporation lost 54 cents to close at $34.87 yesterday.