US bank State Street says first quarter profit fell 6.6%

US bank State Street said first-quarter profit fell 6.6% as expenses rose more than twice as fast as revenue.

Net profit on an operating basis decreased to $410m (€311.7m), or 84 cents a share, from $439m, or 88c, a year earlier, the company said.

The company employs more than 2,200 staff in Ireland, and has offices in Dublin, Drogheda, Kilkenny and Naas. State Street in Ireland services more than €420bn in assets. State Street Global Advisers bought Bank of Ireland’s asset management unit for €57m in Jan 2011.

Expenses on an operating basis climbed 6.9% to $1.8bn, driven by a 9.2% jump in compensation-related costs.

Chief executive Joseph Hooley, who has cut jobs and made acquisitions in an effort to counter the impact from interest rates near zero, said the company is on track to reach a goal for $94m in annual pretax expense savings this year.

“We remain committed to managing expenses carefully and continue to expect our compensation-to-revenue ratio to decline in 2012,” Mr Hooley said. That forecast assumes a “modest” increase in revenue on an operating basis, he said.

Compensation is “driving the miss”, Logan Purk, an equity analyst at Edward Jones & Co said. “That could make some investors pause, but they are in a multi-year plan to reduce costs.”

Operating revenue increased 3.1% from a year ago to $2.4bn as assets under custody rose by 1.3% to $16.9tn, boosted by $233bn in new custody assets won in the first quarter. The amount of money State Street invests for clients decreased 6% to $1,990bn, helping to keep investment management fees flat at $236m. Fees from securities lending rose 47% to $97m.

Net profit fell to $417m, or 85c a share, from $466m, or 93c a share, a year earlier. State Street’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.

Net income was reduced by 3c a share by pretax acquisition and restructuring costs and by 2c a share for litigation-related settlements in the first quarter, according to the statement, which did not provide further details about the settlements.

The US Federal Reserve said in March that State Street was the second-strongest among the 19 largest US banks when the Fed tested their ability to withstand a recession under current capital plans. Bank of New York Mellon was the strongest.

— Bloomberg