2 Factors That Helped State Street Profit

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Low interest rates have hurt U.S. custody banks' ability to gain on lending and have reduced the number of lucrative investment opportunities. Therefore, pulling back on costs has been one of the few ways of propping up profits.

One bank that fits the bill is State Street (NYSE: STT  ) . Reducing expenses helped its fourth-quarter profits climb.

Profits despite weak conditions
Total revenue dropped 5% on a sequential basis, reflecting the cautious nature of clients in the face of weak global markets. The company stated that the disorder in Europe has made clients increasingly risk-averse, affecting both servicing and investment management fees. They declined by 1% and 9%, respectively.

Nevertheless, the custody bank managed to save almost $80 million in 2011 through job cuts and technology upgrades. It plans to reduce expenses by around $170 million this year, according to Keefe Bruyette & Woods analyst Robert Lee. In the last 13 months, State Street and peer Bank of New York Mellon (NYSE: BK  ) have together cut or are expected to cut a total of 3,750 jobs as they aim to save $575 million a year by 2015.

These measures helped State Street witness a 6.7% decline in employee and compensation benefits. Earnings soared to $381 million from $83 million a year ago, even though last year's results were reduced by $500 million due to cost-cutting and technology-based expenses. On an operating basis, earnings grew 4%.

Some new business
While assets under management declined 7.2% on account of redemptions, State Street's assets under custody and administration rose slightly by 1% to $21.8 trillion from the year-ago period in the fourth quarter. The company attributed the rise to new businesses. Peer Bank of New York Mellon also has fared very well in this regard, and its assets under custody and administration rose 3% to $25.8 trillion from a year ago. Although fees have been flat across the board, the rise in AUC is definitely a positive.

The bank also reported a Tier 1 capital ratio of 18.9%, indicating a strong capital position. This, combined with the drive to boost profits, definitely puts State Street in a strong position for 2012. Do you agree?

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Fool contributor Shubh Datta doesn't own any shares in the companies listed above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On January 30, 2012, at 7:59 PM, Kiely1 wrote:

    Yes State Street has profited greatly lately, why wouldn't they? STT received a US TARP Bailout package of $3 Billion two years ago, and since then they have laid off thousands of these very same Americans who provided a cushion for them when State Street Corp (STT) was holding $2 Billion in bad "conduit" investments in a very "bad" economy.

    State Street's CEO Jay Hooley and his Operations man Allen Greene have greatly ramped up a JV or joint venture with SYNTEL (SYNT) Corp of TROY MI, which has resulted in the loss of thousands of jobs in Kansas City, Mo, Irvine CA, and Quincy Massachusetts.

    Currently in PUNE India there are over 1200 workers performing jobs for approximately $400 a month that Americans once were paid $3,200 a month to perform. Somehow during my years in school, including my four years in the MBA program at Northeastern University, I never learned that making millions dollars in profits by eliminating thousands of American jobs was a "positive" "ethical" thing to do....

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