Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is State Street Making Money?

People ask is State Street making money because the company’s exchange-traded funds (ETFs) are among the most popular investments around.

In fact, State Street Corp (NYSE: STT); or State Street Global Advisors, operates over 140 of the popular SDPR ETFs, estimates. Notably, State Operates the largest ETF by volume; the SPDR S&P 500 (NYSEARCA: SPY).

Specifically, the SPDR S&P 500 had an average daily trading volume of 105.452 million shares on 11 March 2019, estimates. In addition, the SPDR S&P 500 had $253.224 million in assets under management (AUM) on the same day.

Thus, ETFs are a huge business at State Street. However, State Street has a lot of competition. For example, the SPDR S&P 500 was the only State Street ETF in’s ranking of ETFs by volume on 11 March 2019.

Is State Street Making money from ETFs?

ETFs and the SPY are popular but is State Street making money from exchange-traded funds?

Currently, the answer is yes because the State Street Corp records a gross profit of $2.986 billion for 4th Quarter 2018. Moreover State Street reports an operating income of $512 million and a net income of $398 million for the same period.

State Street generated those numbers on revenues of $2.986 billion for 4th Quarter 2018. Impressively those revenues; and the gross profit, grew at a rate of 4.92%. Appealingly, State Street’s 4th Quarter 2018 gross profit of $2.986 billion matches its revenues of $2.986 billion.

State Street is Generating a lot of Cash from ETFs

As a value investor my favorite attribute at State Street is the cash it rakes in. For instance, State Street reports a financing cash flow of $13.746 billion, an operating cash flow of $1.633 billion, and a free cash flow of $1.46 billion for 4th Quarter 2018.

Consequently, State Street had $76.637 billion in cash and equivalents on 31 December 2018. In addition, State Street takes in a lot of float in the form of $3.203 billion in receivables.

In detail, float is Warren Buffett’s term for a steady stream of regular cash payments a company can easily tap. State Street generates float from the automatic payments fund owners make. For instance, the regular deductions from employees’ salaries into individual retirement accounts (IRAs).

How State Street Cashes in on Retirement

To clarify, IRAs are among the most popular retirement investments in America and tens of millions of Americans are retiring. In fact, around 10,000 Baby Boomers (persons aged 53 to 74) retire each day, Motley Fool contributor Matthew Frankel estimates.

Moreover there are are around 74 million Baby Boomers in America, Pew Research calculates. Hence, there will be a lot of demand for retirement products like State Street ETFs.

However, there are demographic trends that could become serious problems for State Street soon. First, 46% of Americans are not participating in a workplace retirement plan of any sort, Market Mad House notes. Obviously, some of those people are investing on their own but many are not.

How Retirement Savings Threaten State Street’s Future

Secondly, 75% of Americans admit they have less than $10,000 in retirement savings, GoBankingRates estimates. Moreover, 57% of Americans admit they have under $1,000 in retirement savings.

Meanwhile, the average Social Security payment in the United States is around $1,422 a month or $17,064 a year, Yahoo Finance calculates. Under those circumstances, large numbers will have to sell their ETFs early in their retirement to pay the bills.

This threatens State Street because many Baby Boomers will sell their ETFs to raise quick cash soon after retirement. Hence, the Market Capitalization and share prices of SPDR ETFs could drop as Boomers sell off everything to pay the bills.

Hence the Great Baby Boomer Sell Off can destroy SPDR S&P 500 (NYSEARCA: SPY)’s $277.72 share price and $6.76 billion market cap. In detail, the SPY had a market volume of 24.345 million on 11 March 2019. Hence, $6.76 billion is my estimation for SPY’s Market Cap.

Conversely, State Street could make money from Boomer’s woes by charging fees when they sell ETF shares. Therefore, the value could be in State Street’s stock rather than the ETFs.

Is State Street a Value Investment?

Notably, State Street has plenty of cash to investment in cutting-edge investment products like crypto-assets.

For example, State Street and the Winklevoss twins are collaborating on the  Gemini Dollar (GUSD). The Gemini Dollar is a US dollar-pegged Ethereum stablecoin created by the Twins.

Importantly, State Street will hold the dollars they peg the Gemini Dollar tokens too. To clarify, a Gemini Dollar is really an Ethereum smart contract programmed to pay $1 USD whenever you make a GUSD transaction. State Street maintains the trust in which they hold the dollars, Market Watch reports.

Impressively, the Gemini Dollar has the approval of the New York State Department of Financial Services (NYDFS), Fortune reports. Hence, America’s most important state-level financial authority regulates the Gemini Dollar. However, the  federal financial agencies like the Securities and Exchange Commission (SEC) do not regulate the Gemini Dollar.

State Street is Moving Beyond ETFs and into Crypto

I think State Street is value investment because its management is exploring crypto-assets and other alternatives to ETFs. There could be a big demand for stablecoins like the GUSD because you can use them for cross-border payments.

Cross-border payments are transactions made between parties in different countries. Theoretically, stablecoins like the Gemini Dollar can facilitate such transactions because they are peg them to fiat currencies like the US Dollar.

Uniquely, the market for cross-border payments is growing dramatically. For example, the volume of cross-border payments in 2019 will be $22.23 trillion, Statista estimates. Moreover, the volume of cross-border payments could grow to $26.64 billion by 2022.

Finally, the Gemini Dollar can provide State Street entry into the fast-growing crypo asset and crypto custody businesses. In crypto-custody banks like State Street serve as custodians for crypto-assets like cryptocurrencies and stablecoins.

Prudently, State Street is waiting to see how great crypto custody demand will be before entering the market, Coindesk reports. Therefore, State Street’s management understands the fragility of the ETF market and is researching alternatives.

Is State Street a Good Dividend Stock?

Finally, I like State Street Corp (NYSE: STT) because it is a superb dividend stock.

For instance, State Street shareholders will receive a 47¢ dividend on April 15, 2019. Moreover, State Street’s dividend grew by 5¢ in 2018. Specifically, State Street paid a 42¢ dividend on July 17, 2018, and a 47¢ dividend on 15 October 2018.

Moreover, State Street offered Shareholders a 2.68% dividend yield, an annualized payout of $1.88, and a payout ratio of 24.6% on 15 March 2019. Plus, State Street’s dividend has been growing for eight years, estimates.

Under these circumstances, I think State Street was a good dividend stock at the $70.10 share price recorded on 15 March 2019. In the final analysis, State Street is a good low-price value investment in finance.