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Close on the heels of declaring better-than-expected results, State Street Corporation (STT - Analyst Report) announced to eliminate nearly 630 jobs worldwide – 2% of its workforce. Majority of the layoffs (nearly 260 jobs) are expected to occur in Massachusetts.
State Street made this announcement during the earnings conference call on Jan 18. The company’s CEO stated that the impending job cuts are aimed at offsetting the effects of the persistent low interest rate environment and low trading activity. The company has been facing tremendous pressure from the shareholders to contain the rising costs and boost the bottom line.
State Street – one of the biggest custody banks – expects the operating backdrop to remain challenging in 2013. Consequently, the company anticipates tougher counteractive measures to keep intact the top-line expansion.
In 2010, State Street announced a global multi-year program designed to accelerate growth. The company plans to achieve annual pre-tax expense savings of approximately $540 million by the end of 2014 and approximately $600 million in 2015. The company currently remains on track to achieve its target.
This is not first time State Street has resorted to retrenchment. Earlier in 2010, the company had eliminated approximately 1,400 jobs and in 2009, it had chopped of about 1,700 jobs. Some of the other banks that have slashed their workforces as part of their cost containment measures include Bank of America Corporation (BAC - Analyst Report), The Bank of New York Mellon Corporation (BK - Analyst Report) and Citigroup Inc. (C - Analyst Report).
State Street had reported fourth-quarter earnings per share, which substantially surpassed the Zacks Consensus Estimate. Better-than-expected results benefited from improvement in the top line, partly offset by higher operating expenses. Although asset position remained robust, capital ratios showed mixed trends.
It is imperative for financial institutions to take up cost containment measures seriously amid such a challenging operating environment.
State Street currently carries Zacks Rank #3 (Hold).
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