State Street's Q1 Profit Crimped by Expenses

State Street Corp. said Tuesday that first-quarter profit fell 11 percent as compensation and other employee benefits surged at nearly three times the pace of operating revenue growth.

Escalating compensation costs have been among the chief criticisms of State Street by billionaire activist investor Nelson Peltz, whose Trian Partners has pushed the bank to spin off its asset management arm. Trian has reported a 3 percent stake in the company.

State Street said compensation and employee benefits in the first quarter rose 9 percent to $1.06 billion. The bank attributed the increase to worker demographics, merit increase awards from last year and new hires from new business and acquisitions.

Total operating revenue, meanwhile, rose only 3.1 percent to $2.4 billion from year-ago levels.

The Boston-based custody bank's net income was $417 million, or 85 cents a share, when including preferred stock and other adjustments. That compared with $466 million, or 93 cents a share, in the year-ago period.

Analysts had estimated, on average, the company would earn 86 cents a share, according to Thomson Reuters I/B/E/S.

State Street's servicing fees were $1.08 billion during the first quarter, down 2 percent from a year ago. Investment management fees generated by State Street Global Advisors were $236 million, flat with the year-ago period.

Meanwhile, foreign exchange trading revenue decreased 7 percent from prior-year levels, partly because of lower volatility.

Assets under custody and administration, a key driver of fees, were $23.2 trillion at the end of March, compared with $22.6 trillion in the year-ago period.

Custody bank activities include managing investments, lending stocks, trading foreign currencies, tracking asset valuations and providing accounting services to mutual funds.

The bank said financial markets began to show some stability in the first quarter as average excess client deposits left on its balance sheet declined $5 billion from the fourth quarter. It is an indication big institutions are putting more cash back to work.

(Reporting By Tim McLaughlin; Editing by Maureen Bavdek)