Custodial banks bounced back in the second quarter.
Armed with stronger fee income and an increase in assets under management, State Street Corp. of Boston reported a profit of $432 million, or 87 cents per share, compared with a year-earlier loss of $3.31 billion, or $7.12 a share, which was a result of losses from mortgage-backed securities.
Assets under management rose 15% year over year, to $1.782 trillion, but declined 7.6% from the previous quarter.
In the second quarter, State Street had net investment losses of $50 million and a $10 million loan-loss provision related to its commercial real estate holdings.
Revenue rose 9% year over year, to $2.3 billion as total fee revenue increased 12%.
Joseph Hooley, State Street's chief executive, said in an interview Tuesday that the company had "continued momentum" in its core businesses in the second quarter, most notably in its investment services business because "more outsourcing is going on, and we are having more success competing in the market."
"I think we have got active pipelines in the investor services and asset management business," he said. "The goal is to continue to drive increased share of wallet and continue to introduce new products and services to meet today's needs, like fixed income [exchange-traded funds] and collateral management services."
Analysts said State Street's strong results were in sharp contrast to the first quarter when it reported that trading revenue declined 10% despite strong gains from other large financial institutions.
Hooley said State Street wants to "follow through on the momentum from the first half of the year." During the second quarter, it completed two acquisitions in Europe, and he said the bank is always open to more deals, especially internationally. "We are keeping our eyes open for new opportunities," he said.
On Tuesday, State Street rival Bank of New York Mellon reported a second-quarter profit of $658 million, or 54 cents a share, up from $176 million, or 15 cents a share a year earlier, as it continued to recover from Troubled Asset Relief Program-related charges and securities losses.
The year earlier included a $236 million charge related to the repayment of $3 billion it received from Tarp.
Bank of New York Mellon's assets under management surged 19% year over year to $1.047 trillion, but fell 5.2% from the previous quarter because of stock market declines. Fee revenue rose 1.8% from a year earlier, to $2.56 billion.
Bank of New York Mellon has spent the past year developing its wealth management business. Last month, it announced that it planned to launch a unit for futures and swap trades.