State Street reported a 17% increase in fourth-quarter profit as it cut expenses, offsetting a decline in revenue.

Net income in the three months through December rose to $547 million, or $1.34 a share, from $469 million, or $1.11, a year earlier, the Boston-based custody bank and asset manager said Wednesday in a statement. State Street restated the year-earlier earnings "to reflect adjustments related to certain expenses billed to our asset servicing clients."

Led by Chief Executive Officer Jay Hooley, 58, State Street has accelerated cost cuts as it grapples with regulatory expenses and low interest rates that crimp income from lending and investing. The firm said in October that it would cut 600 jobs globally. A pioneer in exchange-traded funds, State Street is also working to improve its asset-management business after its ETFs lost ground to companies such as BlackRock and Vanguard Group.

"State Street was able to pull expenses down faster than expected," Marty Mosby, an analyst with Vining Sparks in Memphis, Tenn., said in an interview before the figures were released. "The Fed's rate increase is benefiting the bank by increasing asset yields."

State Street said in December that it incorrectly invoiced at least $200 million in asset-servicing expenses to clients over a period of 18 years, which it will fully reimburse with interest.

SEC Settlement

The firm agreed this month to pay $12 million to settle U.S. Securities and Exchange Commission claims that a former senior vice president helped route illicit cash payments and political contributions to win business from Ohio pension funds. State Street, which didn't admit or deny the SEC's findings, will pay an $8 million penalty and $4 million in disgorgement and interest.

State Street is trying to rejuvenate its asset-management arm by pushing into higher fee-paying offerings. It's expanding into more sophisticated offerings that produce higher fee revenue, as well as directing the products more toward retail clients. The firm partnered with MFS Investment

Management in January 2014 to offer actively run equity ETFs. It's also been adding to its sales force, recently rehiring Bobby Brooks from Invesco to head business development for the SPDR ETFs.

State Street is the worst performer among the three largest independent custody banks. Its shares have declined 24% in the past year, compared with a drop of 11% for Northern Trust and a decline of 5% for Bank of New York Mellon.

BNY Mellon last week reported earnings that beat analysts' estimates as it benefited from the Fed's interest rate increase in December, and as non-interest expenses fell. Profit at Northern Trust also exceeded estimates.

Custody banks such as State Street and Bank of New York Mellon keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds.

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