State Street Profit Rises 8% on Rising Equity Markets

State Street Corp. (STT), the third- largest custody bank, said first-quarter profit climbed 8 percent after global equity markets rose, lifting the value of assets it oversees.

Net income on an operating basis increased to $443 million, or 96 cents a share, from $410 million, or 84 cents, a year earlier, the Boston-based company said today in a statement. Excluding certain items, 23 analysts surveyed by Bloomberg expected earnings of 93 cents a share on average.

Chief Executive Officer Joseph L. Hooley, under pressure from some large investors, has worked to reduce costs and return excess capital to shareholders over the past two years. State Street cut 630 jobs in January, the third round of firings in two years, raised its quarterly dividend by 2 cents to 26 cents a share in February and stepped up its planned share repurchase program in March.

“They have been really consistent in the last year or two in changing their philosophy toward returning capital to shareholders, which the market likes,” Brian Bedell, a New York-based analyst at ISI Group Inc., said in an interview before results were announced.

State Street advanced 20 percent this year through yesterday, best among the three largest U.S. independent custody banks. The Standard & Poor’s 20-company index of asset managers and custody banks gained 12 percent.

Stock Repurchases

State Street’s assets under custody and the money it manages for investors rose, helped by the 11 percent gain by the Standard & Poor’s 500 Index (SPX) of U.S. stocks in the year ended March 31.

State Street plans to repurchase $2.1 billion of its own shares in the year ending March 31, 2014, up 17 percent from the previous year. The company announced the move in March after it passed the U.S. Federal Reserve’s stress tests for financial strength and received approval for its 2013 capital plan.

Investor Nelson Peltz’s Trian Fund Management LP admonished State Street’s board over poor performance in an October 2011 letter and urged directors to make a clearer commitment to cost- cutting, prioritize the return of capital to shareholders over acquisitions and consider selling off the bank’s asset- management unit.

Bank of New York Mellon Corp., the world’s largest custody bank, said April 17 it had a net loss of $266 million in the first quarter after the U.S. Tax Court disallowed certain foreign tax credits. Income excluding the tax cost was $588 million, or 50 cents a share, compared with $619 million, or 52 cents, a year earlier.

Northern Trust

Northern Trust Corp. (NTRS), based in Chicago, said April 16 its first-quarter net income rose 1.7 percent to $164 million, or 67 cents a share.

State Street’s results were announced before the start of regular U.S. trading. The company’s operating profit excludes money earned from the sale or maturing of bonds whose value was written down in May 2009, which the company records as “discount accretion” within net interest income.

Custody banks keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds. State Street also manages investments for individuals and institutions.

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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