State Street sees profit jump after slashing portfolio risk

STATE Street looked like one of the winners of the US bank reporting season yesterday after its profits almost doubled over the fourth quarter of the year.

State Street, one of the world’s biggest institutional investors, saw net income rise to $498m (£305.6m), or $1 per share, over the quarter, from $256m a year ago.

The bank saw full-year revenue slide 19 per cent to $8.64bn after a tough year that saw it repay $2bn of its loan from the US government’s Troubled Asset Relief Programme (TARP) in June. Full-year earnings per share fell 19.5 per cent to $3.46, from $4.30 in 2008. The bank said it had put aside $791m for salaries and employee benefits in the last three months of the year, a three per cent decline on the third quarter after it reduced discretionary cash bonuses.

It paid out $3.04bn in compensation over the full year, compared to $4.12bn in 2008.

Unrealised losses on State Street’s investment portfolio, which totalled $2.98bn at the end of the third quarter, shrank further to stand at $2.29bn, after the bank won praise from the industry for cutting the risk in its portfolio significantly in 2009.

State Street expects revenue to increase this year as it completes its planned acquisition of the securities servicing arm of Intesa Sanpaolo, one of Italy’s biggest retail banks.

But Joseph Hooley, who will replace chief executive Ronald Logue in March, warned State Street will face “headwinds” as the economy recovers slowly.