State Street net drops 16%

Custody bank State Street Corp. said Tuesday its first-quarter profit fell 16 percent due to declines in both fee revenue and interest revenue. Net income available to common shareholders declined to $445 million, or $1.02 per share, from $530 million, or $1.35 per share, a year earlier. Operating earnings, which exclude charges tied to merger and integration costs, totaled $1.04 per share during the period. Analysts polled by Thomson Reuters, on average, forecast earnings of $1.02 per share. Analysts do not always include special charges in their estimates. State Street's profit declined mainly due to a drop in fee revenue. The Boston-based bank's fee revenue dropped 27 percent to $1.42 billion, from $1.96 billion a year ago. Revenue across all types of fees, including servicing, management, trading, securities finance and processing, all fell. Servicing fees, which account for more than half of State Street's fee revenue fell 20 percent to $766 million in the first quarter, from $960 million last year. Net interest revenue also declined, falling 10 percent to $564 million. As a trust bank, State Street has been able to largely avoid the problems of traditional commercial banks, especially rising loan losses. State Street set aside $84 million for loan losses during the first quarter, compared with none during the first quarter last year. State Street was able to offset some of the declining revenue by cutting costs. The bank reduced expenses by 27 percent. Total expenses fell to $1.3 billion during the quarter as the bank cut salaries and benefit costs by 31 percent. The weakening economy, which slowed business, will keep pressure on earnings in 2009, the company's chairman and chief executive, Ronald Logue said in a statement. Logue said the unsettled economic environment will likely lead to State Street's 2009 operating earnings falling at the lower end of its outlook released in February. At that time, State Street said it expected operating earnings to decline between 12 percent and 16 percent during the year. At the end of the first quarter, assets under custody fell to $11.34 trillion from $14.90 trillion a year earlier. Assets under management declined to $1.4 trillion from $1.96 trillion a year earlier.