State Street shares plummet as cost-cutting drive continues
SHARES of State Street fell almost 8pc yesterday after the custody bank which employs 2,200 people in Ireland said it will continue to cut costs as the financial markets struggle.
Rivals Northern Trust and Bank of New York Mellon, which also have significant operations in Ireland, also released results yesterday which saw profits squeezed in the fourth quarter as low interest rates eat into their margins.
State Street, which employs people in Dublin, Drogheda, Kilkenny and Naas, told analysts yesterday it owns no bonds issued by Ireland, Greece, Spain, Portugal, Italy, Germany, France or Belgium, and expects the financial crisis to continue.
State Street's net income rose 4.4pc to $454m in the final quarter of 2012 from the same period last year. Sales rose 13pc. Expenses declined 0.4pc. Pay and benefits fell 6.7pc as the company eliminated jobs in the US but employee numbers here were steady. The cuts helped State Street to save about $80m. The company aims for savings of at least $575m by 2015.
Rival Northern Trust, which bought Bank of Ireland Asset Management for €60m last June, said yesterday it will eliminate about 700 jobs as it tries to keep up with Bank of New York Mellon and State Street. After-tax profit at Northern Trust fell 17pc to $130m in the fourth quarter, while after-tax profit at BNY Mellon fell 26pc to $505m.
Custody banks are struggling as record-low interest rates hobble profit. The Federal Reserve's decision to keep its main lending rate close to zero has eroded margins on lending and investments for custody banks and forced them to waive fees on money-market funds.
"The banks had been in a growth mode for a while and now all of them have recognised the fact that the environment isn't going to change quickly and they can't continue to sit on the cost burdens related to that growth," Marty Mosby of Guggenheim Securities said.