State Street Eliminates 400 Jobs in Fourth Round of CutsChristopher Condon
State Street Corp. is eliminating 400 jobs, about 1.4 percent of its workforce, in a fourth round of cuts since 2010 as the third-largest custody bank seeks to reduce expenses to combat the impact of low interest rates.
The measure, on top of 2,900 job cuts since November 2010, will result in $22 million in savings in 2014 and $40 million annually from 2015, the Boston-based company said today. Severance expenses of $72 million pushed first-quarter net income 22 percent lower to $356 million, or 81 cents a share, State Street said.
“The environment for the custody banks is continuing to take out revenue and they just can’t really continue to wait on interest rates to go higher,” Marty Mosby, an analyst with Guggenheim Securities LLC in Hernando, Mississippi, said in a telephone interview. “State Street started this process about a year ahead of everyone else, and so they got to the end of their previous initiatives ahead of the others.”
State Street has relied over the past three years on a combination of cost cutting and global equity-market gains to overcome the negative impact of low interest rates. The U.S. Federal Reserve has held its benchmark interest rate at zero to 0.25 percent since December 2008 in an attempt to stimulate borrowing and economic growth. Low rates hurt the ability of custody banks to earn money on lending and investing activities.
Excluding some costs such as the severance expenses, State Street’s operating basis net income was 99 cents a share, missing the $1 a share estimate of 20 analysts surveyed by Bloomberg.
State Street declined 3 percent to close at $63.79 in New York trading. The shares have slumped 13 percent this year, the most among the three biggest U.S. custody banks. Bank of New York Mellon Corp. declined 3.8 percent this year and Chicago-based Northern Trust Corp. fell 3.9 percent.
The job cuts will take place over the course of 2014, and will include 140 in Massachusetts, Chief Executive Officer Joseph Hooley said in a telephone interview. The cuts weren’t concentrated in any business areas and don’t result from eliminating or outsourcing any functions, he said.
“We’re still in a constrained environment and we’re looking at expenses everywhere,” he said.
The Standard & Poor’s 500 Index of large U.S. stocks advanced 1.3 percent during the quarter and jumped 19 percent in the year ended March 31.
That helped boost assets under custody by 13 percent from a year earlier, and by 2.9 percent in the quarter, to $21 trillion. The amount of money State Street invests for clients rose 9.4 percent from a year earlier, and by 1.5 percent in the quarter, to $2.38 trillion. The asset management unit gathered $4 billion in net deposits in the quarter, Hooley said in a conference call with analysts.
Higher assets helped lift revenue 2 percent to $2.49 billion. The increase was held back by a drop in trading services revenue. Expenses increased 11 percent to $2.03 billion from a year earlier, driven largely by the severance costs. Net interest revenue declined 3.6 percent to $555 million.
“My outlook is fairly optimistic for the U.S. economy, but for planning purposes I’m not counting on that,” Hooley said in the interview.
State Street said in March it planned to increase its quarterly dividend to 30 cents a share from 26 cents after the Fed approved its capital plan for 2014. The company also said it would reduce its stock buybacks in the year through March 2015 to $1.7 billion from $2.1 billion in the previous 12 months.
BNY Mellon, the world’s largest custody bank, said on April 22 its first-quarter profit was $661 million, after a $266 million loss a year earlier. Northern Trust, the third-largest independent custody bank, said on April 15 its net income for the period increased 11 percent from a year earlier.
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.