Dec. 3 (Bloomberg) -- State Street Corp., the world’s largest money manager for institutions, plans to cut 1,700 jobs by March to offset the impact of the bear market on profits.

State Street will shed about 6 percent of its 28,700 employees, about two-thirds of that coming in North America, the Boston-based company said today in a statement. The reductions will mostly come in middle and senior management ranks.

Fund managers and custody banks have suffered as $31 trillion in value has been erased from world equity markets in 2008, a loss of 51 percent. Bank of New York Mellon Corp., the world’s largest custodian of investment assets, said Nov. 20 it will eliminate 1,800 jobs, or 4 percent of staff.

“It’s tough on morale but what shareholders need to see,” Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said in an interview. Cassidy, who doesn’t own State Street, rates the stock “sector perform.”

State Street had $14.1 trillion in assets under custody as of Sept. 30, down 6.9 percent this year. Assets that the company invests for clients fell 15 percent to $1.69 trillion. State Street earns much of its fees based on the amount of money it oversees and invests.

The company said in October it may set aside as much as $450 million before taxes this quarter to absorb losses for investors whose funds were hurt when credit markets seized up. The company also reported third-quarter earnings rose 33 percent to $477 million, or $1.09 a share, as volatile financial markets increased securities-lending and trading fees.

“It is important for State Street to continue to deliver consistent earnings growth, particularly during this difficult environment,” Chairman and Chief Executive Officer Ronald Logue said in the statement.

State Street made the announcement after the close of regular U.S. trading. It fell 33 cents today to $36.60 in New York Stock Exchange composite trading, pushing its year-to-date loss to 55 percent, compared with a 53 percent drop in the 16-member Standard & Poor’s Supercomposite Asset Management & Custody Banks Index.

Custody banks keep records, track performance and lend securities to institutional investors including mutual funds and hedge funds. The company’s money management unit, State Street Global Advisors, also manages mutual funds and investment accounts for institutions and wealthy individuals.

Severance, benefits and other costs stemming from the job cuts will result in a pretax expense of $325 million to $350 million, or 51 cents to 55 cents a share, most of which will be realized in the current quarter, spokeswoman Carolyn Cichon said in an e-mail. The cuts will also create $375 million to $400 million in annualized savings.

State Street stuck by its forecast for rising profit this year and next year. It continues to expect growth in operating earnings in 2009 “to approach the low end” of the 10 percent to 15 percent range.

Boston-based Fidelity Investments, the world’s largest manager of mutual funds, plans to cut 3,000 jobs by the first quarter. New York’s BlackRock Inc. and AllianceBernstein Holding LP, Baltimore’s Legg Mason Inc. and Denver’s Janus Capital Group Inc. have all started axing staff.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

Last Updated: December 3, 2008 17:48 EST