State Street Falls Most Since August After Missing Earnings Estimates

State Street Corp. (STT), the third- largest custody bank, fell the most in five months after fourth- quarter earnings missed analysts’ estimates and Chief Executive Officer Joseph Hooley said weak capital markets will probably persist in 2012.

State Street dropped 6.6 percent to close at $39.95 in New York trading, the most since Aug. 10, after the Boston-based company missed the 94-cents-a-share average estimate of 21 analysts surveyed by Bloomberg.

“I’m not trying to give necessarily a negative outlook, just a realistic outlook,” Hooley said during a conference call with investors. “I don’t think anybody’s ready to predict that the most recent markets are going to sustain themselves.”

Custody banks, hurt by record-low interest rates that reduce the return on investments and lending, and by a decline in equity markets in 2011, have worked to buoy profits by cutting expenses. State Street has eliminated 2,250 jobs in the past 13 months as it aimed to reduce costs by at least $575 million annually by 2015.

Hooley said it would be difficult to create positive operating leverage in 2012, referring to the ability of revenue growth to outpace expense growth. He said he intended to continue trimming expenses and hoped to increase dividends and share buybacks this year.

‘Not As Upbeat’

“State Street has been a strong stock and the commentary from the company was not as upbeat today as it had been in the past two quarters,” Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said in a telephone interview.

Shares had been up 33 percent since the end of the third quarter of 2011 through yesterday, compared with a 20 percent gain by rival Northern Trust Corp. (NTRS) and 14 percent by Bank of New York Mellon Corp (BK) over the same period.

State Street said profit on an operating basis rose 4.4 percent to $454 million, or 93 cents a share, from $435 million, or 87 cents, a year earlier. State Street said revenue was $2.32 billion, compared with $2.41 billion expected by the analysts, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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