By Justin Baer and Robert Barba
State Street Corp. posted quarterly results that beat Wall Street estimates and offered investors some signs of a turnaround.
The custody bank's shares rose 6.1% to $63.34 on Friday.
State Street's profit dropped nearly 24% to $583 million, or $1.42 a share, in the quarter, compared with $764 million, or $1.87 a share, a year earlier. Total revenue slipped 2.9% to $2.9 billion.
Quarterly profit and revenue exceeded analysts' average estimates, though, according to FactSet. And the bank's revenue rose 1% from its total three months earlier, thanks to stock-market gains and some new business wins by its core division that provides accounting and administrative services to other asset managers.
"We are making progress," Ron O'Hanley, chief executive of State Street, said Friday during a conference call with analysts.
State Street and rival Bank of New York Mellon Corp. have been mired in yearslong turnaround plans aimed at slashing expenses, modernizing technology systems and identifying new businesses that can help jump-start growth. Both custody banks also turned to new leaders, with Mr. O'Hanley stepping in as State Street's CEO at the start of this year.
Whatever momentum that had been building at each of those banks appeared to stall in late 2018, when a sharp stock-market selloff cut into many of the businesses that collect fees on the assets they oversee for clients. Clients continue to shift more money into low-cost investment funds from those that command higher fees, ramping up the pressure on both asset managers and their custody banks to cut fees.
More recently, a drop in long-term debt yields crimped interest income.
In an interview, Mr. O'Hanley said those factors still weigh on the industry. But the bank is on track to meet its goal of wringing $400 million in expenses by the end of 2019, he said. Recent efforts to renegotiate contracts with its largest clients have slowed what has been a relentless march toward lower fees in asset-servicing, and State Street's acquisition of investing-analytics platform Charles River Systems Inc. is starting to bear fruit, he added.
"You can't stop the headwinds, but they're doing the things they can to control expenses and improve their technology offerings," said Patrick Voigt, an analyst at Centerstone Investors, which owns State Street shares.
Fee income was $2.26 billion in the third quarter, down 2.5% from a year earlier. Net interest income totaled $644 million, down 4.2% from a year earlier.
Total assets under custody and/or administration fell 3.2% to $32.9 trillion. Assets under management totaled $2.95 trillion, up 5.1%.
Mr. O'Hanley said recent moves by online brokers to eliminate commission costs on stock and exchange-traded fund trades will benefit State Street's asset-management arm, which runs one of one the biggest ETF businesses.
Corrections & Amplifications State Street Corp. had total assets under custody and/or administration of $32.9 trillion and assets under management of $2.95 trillion at the end of the third quarter. An earlier version of this article listed those figures as $32.9 billion and $2.95 billion, respectively. (Oct. 18, 2019)
Write to Justin Baer at firstname.lastname@example.org and Robert Barba at Robert.Barba@wsj.com