UPDATE 1-State Street's profit falls 22 pct as costs rise

Fri Apr 25, 2014 8:21am EDT

* Q1 earnings per share 99 cents vs est of $1.00/shr

* Expenses rise 11 pct to $2.03 bln

* Q1 results include pre-tax severance costs of $72 mln (Adds details)

April 25 (Reuters) - State Street Corp, the world's second-largest custody bank, reported a 22 percent fall in first-quarter profit, mainly due to higher expenses related to recent job cuts.

Total expenses rose about 11 percent to $2.03 billion, while employee compensation costs increased about 5 percent to about $1.09 billion.

The results included pre-tax severance expenses of $72 million, or 11 cents per share, the company said.

The company has been cutting jobs over the last few quarters as it struggles with high costs, which have been a bone of contention with some large shareholders.

Total costs for the quarter represented about 80 percent of the company's revenue of $2.49 billion.

"We are responding to the challenges presented by low interest rates and conservative investor risk appetite by realigning our staffing to support our goal of positive operating leverage for the full year," Chief Executive Joseph Hooley said.

Custody banks such as State Street and BNY Mellon Corp lend stocks, track mutual fund prices and collect and distribute dividend and interest payments for investors. They, however, do not have retail branches.

BNY Mellon, the world's largest custody bank, reported a better-than-expected first-quarter profit on Tuesday as rising capital markets drove up its assets under custody and administration.

State Street's net income available to common shareholders fell 16 percent to $356 million, or 81 cents per share, in the quarter ended March 31.

Revenue rose about 2 percent. Servicing fees rose 5.4 percent to $1.24 billion.

On an operating basis, State Street earned 99 cents per share, missing the average analyst estimate of $1.00 per share, according to Thomson Reuters I/B/E/S.

State Street's assets under administration rose 9.4 percent to $2.38 trillion as of the end of the quarter.

State Street's shares, which have fallen 10 percent so far this year, closed at $65.73 on Thursday on the New York Stock Exchange. (Reporting by Avik Das in Bangalore; Editing by Saumyadeb Chakrabarty)

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