Boston’s State Street Corp., one of the world’s biggest institutional investors, posted higher quarterly earnings Tuesday, in line with expectations, but cut its outlook for the full year, citing the slow pace of economic recovery.
The company’s shares, up 34 percent since January, were down 2.3 percent in premarket trading.
State Street, which also earns fees for offering services like record-keeping to mutual and hedge funds, said third-quarter earnings rose to $516 million from $477 million a year earlier.
Per-share earnings declined to $1.04 from $1.09 because of an increase in shares outstanding. Analysts had expected $1.04 per share.
State Street sold 51.3 million new shares in May as part of a $2.5 billion capital-raising.
Revenue fell 19 percent to $2.24 billion.
The company cut costs by laying off 6 percent of its staff in the first quarter, trimming bonuses and sharply reducing dividend payouts. The last payouts have been at 1 cent a share, down from 24 cents a share in January.
The company cut its outlook for 2009, saying it had expected the second half of the year to be "stronger than it now appears to be.” Citing the slow pace of economic recovery, it said it now expects operating revenue to decline about 16 percent from last year’s record level.
Unrealized losses on the company’s investment portfolio, which totaled $4.75 billion at the end of the second quarter and have long worried investors, declined to $2.98 billion at the end of the third quarter.
Total assets under custody and administration stood at $17.94 trillion at the end of the third quarter, down 2.8 percent from a year earlier. Assets under management stood at $1.74 trillion, up 2.9 percent.
In the second quarter the company reported a loss of $7.12 per share. It took a $6.1 billion charge in the period to move assets from its troubled commercial paper program onto its balance sheet.
Although State Street has won new business in the last weeks and benefited from rising markets this year, it still reported a 14 percent drop in servicing fee revenue, earning $833 million in the third quarter, compared with $966 million a year earlier.
Fees earned by State Street’s investment unit dropped 16 percent to $261 million as many clients shifted their investments to passively managed portfolios, where the company earns lower fees, from actively managed funds.
Trading service revenue, which includes foreign exchange trading revenue and brokerage and other fees, fell 26 percent to $363 million. The company reported a 41 percent drop in foreign exchange revenue, largely due to lower trading volumes and lower volatility.
