State Street CEO defends strategy amid investor unrest

BOSTON Tue Oct 16, 2012 1:02pm EDT

BOSTON (Reuters) - State Street Corp (STT.N) Chairman and Chief Executive Jay Hooley on Tuesday defended his strategy for the global custody bank, saying most shareholders like what he is doing.

His comments followed a newspaper report on Monday that some large investors are growing frustrated with Hooley's management of the company.

"Most of the investors I speak to like the company and its long-term prospects," Hooley told Reuters in a telephone interview. "But they also want something in the short term."

Hooley's remarks come after the Financial Times reported that four of State Street's largest shareholders are unhappy with the pace of Hooley's $600 million-plus cost-cutting program. The paper said some of these investors, which it did not name, would like to replace either Hooley or Chief Financial Officer Ed Resch.

"I won't comment on that," Hooley said, when asked about investor unhappiness.

Shares of State Street on Tuesday rose 4.4 percent to $43.41 after the Boston-based bank reported a third-quarter profit that beat analysts' estimates. The company surprised analysts with a compensation ratio that was 39 percent of operating revenue. With declining market-related revenue from activities such as foreign exchange trading, analysts thought that ratio would be higher.

Compensation and overall expense management have been a bone of contention among some shareholders, namely Nelson Peltz, founder and chief executive of Trian Fund Management LP in New York. Trian is State Street's eighth-largest investor, owning 2 percent of the company's stock at midyear, according to Thomson Reuters data.

A year ago, Trian released a critique of State Street's operations, faulting the company for paying too much for acquisitions and not keeping a lid on expenses. The report said compensation costs increased dramatically while earnings per share declined.

"We're always looking to calibrate (expenses) to the revenue environment," Hooley said.

Hooley said interacting with shareholders is one of his principal responsibilities.

"I do it often, particularly with larger ones," Hooley said. "I am always looking for an opportunity to update them on strategy and execution. I'm also looking for input. I deal with a lot of shareholders over a long period of time. There's not one conclusion from that."

He added that shareholders tell him they like State Street's business model and acknowledge it's a rough environment amid rock-bottom interest rates and tepid growth in global capital markets.

"Everybody accepts that it's cyclical, not structural," Hooley said. (Reporting By Tim McLaughlin; Editing by Steve Orlofsky)

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