Cost-cutting helps State Street’s profits rise 11%

STATE Street — the custody bank under pressure from investor Nelson Peltz to increase profitability — yesterday said third-quarter profit rose 11%, helped by cost-cutting and a takeover.

The company employs more than 2,200 staff in Dublin, Drogheda, Kilkenny and Naas. The bank’s net income on an operating basis increased to $476 million, or 96c a share, from $427m (€307.2m), or 86c a share, a year earlier, the company said.

Peltz, founder and chief executive of Trian Fund Management in New York, called on State Street in an October 16 letter to make a clearer commitment to cost cutting, to put shareholder returns ahead of acquisitions and to consider selling its money-management unit.

Joseph Jay Hooley, the bank’s chief executive, has sought to lower costs by announcing 2,250 job cuts in the past year, about 8% of its workforce. State Street has struggled along with its peers to increase profit amid volatile equity markets and record low interest rates, which reduce the returns they earn on investments and on the lending of cash and securities to institutional investors.

Peltz, a billionaire whose firm owns 3.3% of State Street shares, criticised the bank for allowing costs to grow faster than sales, for making “very expensive” acquisitions and for reporting “recurring ‘non-recurring’ charges” that, according to the letter, accounted for 30% of pretax earnings each year since 2007.

“While we agree with some of the detail of Trian Partners’ assessments and action plans, we continue to think State Street management is handicapped by the current backdrop,” Brian Bedell, an analyst with ISI Group, said.

State Street said it had “engaged in constructive discussions” with Trian over the past year.