* State Street trading revenue remains weak
* Bank's FX settlement talks with Arkansas pension fund fail
* Compensation levels at bank remain elevated
Nov 13 Weak foreign exchange revenue persists at
State Street Corp, hurting the custody bank's chances of
lowering its high ratio of compensation expenses, top executives
said on Tuesday.
Some shareholders, including activist investor Nelson Peltz,
have criticized State Street's compensation-to-revenue ratio,
saying it is too high.
State Street's goal is to keep the ratio at about 39
percent, compared with 40 percent in 2011. But that goal could
be hard to meet as foreign currency trading revenue withers from
slack volume and volatility while key customers shift away from
transactions with higher profit margins.
State Street Chief Financial Officer Ed Resch said on
Tuesday he expects the compensation-to-revenue ratio to be
pressured, primarily because of weak trading revenue. He made
his remarks during a presentation with State Street Chairman and
Chief Executive Jay Hooley at the Bank of America Merrill Lynch
Banking and Financial Services Conference in New York.
Meanwhile, State Street is battling a number of lawsuits
that allege the bank overcharged clients on forex trades that
were not negotiated. These so-called standing instruction trades
had been a lucrative franchise for State Street. The bank
denies any wrongdoing, but pension funds, for example, are now
telling their investment managers to negotiate more forex trades
and to do fewer standing instruction transactions.
State Street's third-quarter foreign exchange revenue
dropped 44 percent to $115 million from the year-ago level of
$204 million, partly because of the change in client behavior.
In a closely watched forex case, the Arkansas Teacher
Retirement System and State Street entered into private
mediation talks during two days in late October. But the $12
billion pension fund and the bank were unable to settle the
case, lawyers said in a Nov. 2 joint status report filed in U.S.
District Court in Boston.
State Street shares were up 0.7 percent at $44.68 at midday