Nelson Peltz Admonishes State Street over Negative Shareholder Returns

October 17 00:00 2011

New York, October 17 ( – Billionaire investor Nelson Peltz asked the board of State Street Corp. to get its act together as the EPS (Earnings Per Share) has declined. He admonished them over their poor performance and advised them to formulate a multi-step plan to increase the bank’s profit.

Peltz recommended that the custody bank should adopt a determined commitment to cut costs, prioritize the return of capital to shareholders over acquisitions, and to consider sale of its asset-management unit. Peltz’s Trian Fund Management LP owns about 3.3 percent of State Street shares. In a statement, Trian said, “Earnings per share have declined, the valuation and multiple have contracted and shareholder returns have been negative.”

Custody banks have been plagued by record-low interest rates, which reduce the returns they earn on investments and on the lending of cash and securities to institutional investors. Last year, the CEO of State Street, Joseph Hooley had started job cuts, reducing the staff by 8 percent and had announced reorganization of information-technology systems in an attempt to reduce costs.

Peltz was critical of the company allowing costs to grow faster than sales, for making “very expensive” acquisitions and for reporting “recurring ‘non-recurring’ charges” that accounted for 30 percent of pre-tax earnings each year since 2007.