State Street Raises Dividend 33% After Stress Test

State Street Corp. (STT), the third- biggest custody bank, raised its quarterly dividend 33 percent after it passed the U.S. Federal Reserve’s stress test scenario yesterday and received approval for its 2012 capital plan.

The firm increased the quarterly payout to 24 cents a share from 18 cents a share payable April 16, the Boston-based company said today in a statement. Its board of directors also approved a share repurchase program of up to $1.8 billion in common stock through March 31, 2013.

State Street emerged as the second strongest among the 19 largest U.S. banks when the Fed tested its ability to withstand a recession under current capital plans. Bank of New York Mellon Corp. (BK) would have the highest Tier 1 common capital ratio at 13.1 percent in the fourth quarter of 2013 under the hypothetical stress scenario, followed by State Street at 12.5 percent.

State Street’s Tier 1 common capital ratio at the end of September was 16 percent, best among the 19 banks.

The firm’s shares rose 2.3 percent to close at $44.88 in New York trading. State Street has increased 11 percent this year, compared with a gain of 17 percent for the 20-member Standard & Poor’s index of asset managers and custody banks.

Custody banks keep records, track performance and lend securities to institutional investors including mutual funds, pension funds and hedge funds. The company also manages investments for individuals and institutions under its State Street Global Advisors unit. BNY Mellon is the largest custody bank.

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