Profits plunge even as assets under custody hit all-time high
State Street Corp., the third-largest custody bank, said net income fell 84 percent in the fourth quarter because of costs stemming from job cuts and the sale of securities to bolster capital.
Net income dropped to $81 million, or 16 cents a share, from $498 million, or $1, a year earlier, the Boston-based company said today in statement. Operating profit was 87 cents a share, beating the 86-cent average estimate of 20 analysts surveyed by Bloomberg.
Chief Executive Officer Joseph Hooley, 53, is eliminating 1,400 jobs, or 5 percent of the workforce, to lower costs as record-low interest rates eroded profit from investing and securities lending. Asset-servicing revenue climbed 19 percent compared with a year earlier as global markets rallied, raising assets under custody.
“For any of the fee-based banks, investors want to see double-digit growth in their core businesses,” Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, said in a telephone interview before results were announced.
The firings will save as much as $625 million before taxes by the end of 2014 while triggering $450 million in restructuring costs over four years, including $165 million in the fourth quarter, State Street said Nov. 30.
Operating revenue climbed 9.6 percent in the quarter from a year earlier while expenses rose 4.4 percent. Assets under management rose 3 percent to $2.01 trillion. Custody assets were a record $15.9 trillion, an increase of 15 percent.
$11 Billion Sale
State Street said Dec.9 that it had sold $11 billion of mortgage-backed and other asset-backed securities. By replacing them with less-risky bonds, including Treasuries, State Street increased its capital ratios, helping it meet tougher standards set under the Basel III international banking rules agreed to last year. The step would cost $350 million in the fourth quarter, the company said at the time.
Bank of New York Mellon, the largest custody bank, today reported a 15 percent increase in fourth-quarter net income as rising equity markets boosted assets under custody and assets under management.
Both banks have sought to lift profits through acquisitions. State Street completed two European deals in 2010 that added to earnings.
Acquisitions Completed
The company finished the purchases of Mourant International Finance Administration in the U.K.'s Channel Islands in April and the securities-servicing unit of Italy's Intesa Sanpaolo SpA in May.
State Street on Jan. 10 said it had wrapped up its acquisition of the Bank of Ireland's asset-management unit for about 57 million euros ($75 million).
The results were released before the start of regular U.S. trading. The company climbed 16 percent in the past year, compared with the 15 percent gain by Standard & Poor's index for 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 individual and institutions under its State Street Global Advisors unit. BNY Mellon is the largest custody bank, followed by JPMorgan Chase & Co. in New York.
--Bloomberg News--
