NEW YORK — State Street Corp. reported a 1.6% increase in third-quarter profit as well as an interest in making acquisitions in Europe and buying back more of its stock.
The comments come as the Boston bank is dealing with pressure from activist investor Trian Fund Management LP, which has demanded the bank improve returns and has alleged "a culture that has prioritized growth over profitability."
Chairman and Chief Executive Joseph Hooley on Tuesday responded to Trian by touting State Street's "track record of profitable growth" and "strongest capital position among our closest peers."
Hooley said the bank is prepared to use its capital position for acquisitions, particularly in Europe, where concerns about financial institutions could result in consolidation there.
"Without being specific, it feels to me like we're getting closer" to a pick-up in mergers and acquisitions activity, he said. State Street is looking for deals valued between $500 million and $2 billion.
Hooley also told investors that State Street "would like to get more capital back to shareholders, so buybacks are a bit of a priority for us." Like many large banks, State Street has to go through a regulatory stress test early next year to get approval for dividend increases and fresh share buybacks.
State Street bought $5.8 million worth of its stock in the third quarter and has $225 million left from its current buyback program.
The CEO's comments jump started the company's share price, which rose 6.6% to $36.08. Before Tuesday, the stock was down 27% in 2011.
As one of the country's largest bank acting as a custodian for investment firms' securities and other back-office duties, State Street has benefited from strong deposit growth — but less opportunity to earn money with those deposits because interest rates remain low. Turbulent capital markets further hurt the Boston company's earnings.
For the third quarter, State Street reported a profit of $555 million, up from $546 million a year ago. "We believe our third-quarter earnings results underscore the underlying strength," Hooley said.
On a per-share basis, which reflects payment of preferred dividends, earnings rose to $1.10. Analysts polled by Thomson Reuters expected a profit of 88 cents.
"Strong results in custody and FX, coupled with decent expense controls, delivered the beat" to analyst estimates, Ken Usdin of Jefferies & Co. said.
Revenue rose 5% from a year earlier but fell 3% from the previous quarter, to $2.4 billion, driven by new clients and stronger foreign exchange revenue, the bank said. Both fee revenue and expenses rose 18% from a year earlier. Like many banks, State Street is planning to cut costs.
Revenue at State Street Global Advisors, whose clients include nonprofit organizations, corporations and pension funds, rose 17%, to $229 million. Total assets under management fell 4.2%, to $1.877 trillion.
"On balance, the core business held in better than expected," Macquarie Capital analyst John Moran wrote in a research note.
Deposits rose almost 30% from a year earlier, to $135 billion, and even non-interest bearing deposits more than doubled, to $36 billion. State Street competitor Bank of New York Mellon Corp. recently started to charge some customers to keep their large deposits.
State Street parked $42 billion deposits with the Federal Reserve, 72% more than the amount of deposits parked at central banks a year earlier. The bank's investment in securities held for sale increased 20%, to $97 billion.
