State Street Joins Fidelity, Legg Mason in Shedding Fund Jobs

By Christopher Condon

Dec. 4 (Bloomberg) -- State Street Corp., the world’s largest money manager for institutions, plans to cut 1,700 jobs, the latest in a wave of financial-sector layoffs during the worst year for U.S. stocks since the Great Depression.

State Street will shed about 6 percent of its 28,700 employees by March, with about two-thirds of the reductions affecting workers in North America, the Boston-based company said yesterday in a statement. The layoffs will mostly come in middle and senior management ranks.

Banks, brokerages and money managers have announced more than 200,000 job cuts worldwide since last year’s collapse of the subprime-mortgage market. The Standard & Poor’s 500 Index has dropped 41 percent in 2008, the worst performance since 1931.

Companies are using the market rout to get rid of mediocre workers, said Jeanne Branthover, head of the global financial- services practice at recruiting firm Boyden Global Executive Search in New York. “Companies will be upgrading and replacing people because there’s such good talent out there right now,” she said.

Boston-based Fidelity Investments, the world’s largest manager of mutual funds, plans to cut 3,000 jobs by the first quarter. BlackRock Inc. in New York, Legg Mason Inc. in Baltimore, New York-based AllianceBernstein Holding LP and Janus Capital Group Inc. in Denver also have started to ax staff.

Cutbacks that started at banks and brokers and then spread to fund managers are now taking place at leveraged-buyout firms. Carlyle Group, the world’s second-largest private-equity firm, said yesterday it will eliminate 100 jobs, or 10 percent of its workforce.

‘Tough on Morale’

Fund companies are taking steps to lower costs as the fees they earn from managing clients’ accounts decline. The current bear market has erased $31 trillion of value from world equity markets in 2008, a drop of 51 percent.

Bank of New York Mellon Corp., the world’s largest custodian of investment assets, said Nov. 20 it will eliminate 1,800 jobs, or 4 percent of staff.

“It’s tough on morale, but it’s what shareholders need to see,” said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine.

State Street had $14.1 trillion in assets under custody as of Sept. 30, down 6.9 percent this year. Assets that the company invests for clients fell 15 percent to $1.69 trillion. State Street earns much of its fees based on the amount of money it oversees and invests.

State Street Expenses

Severance, benefits and other expenses stemming from the job reductions will result in pretax costs of $325 million to $350 million, or 51 cents to 55 cents a share, most of which will be realized in the current quarter, State Street spokeswoman Carolyn Cichon said in an e-mail. The cuts will also create $375 million to $400 million in annualized savings.

State Street stuck by its profit forecast for 2008 and 2009. The company continues to expect operating earnings to increase at “the low end” of the 10 percent to 15 percent range next year.

“It is important for State Street to continue to deliver consistent earnings growth, particularly during this difficult environment,” Chairman and Chief Executive Officer Ronald Logue said in yesterday’s statement.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net