Expenses declined 2.9 percent, driven by a 5.1 percent decline in compensation and employee benefits to $916 million.

Controlling Expenses

"In a difficult environment, we were able to achieve positive operating leverage by controlling expenses," Hooley said in the statement.

State Street won new business mandates in the quarter that added $211 billion to custody assets and $78 billion to investment assets.

The company repurchased 11.4 million shares of common stock in the third quarter for $480 million. The company has $840 million remaining in a $1.8 billion repurchase program that expires in March 2013.

Low interest rates hurt custody banks by reducing the return they make on their own investments and lending. Low rates have also forced State Street to waive some fees on money-market funds to keep client returns above zero. The U.S. Federal Reserve has held its benchmark interest rate at zero to 0.25 percent since December 2008 in an attempt to stimulate lending and economic growth.

Peltz Pressure

State Street came under pressure from investor Nelson Peltz in October 2011 to increase profitability. Peltz, founder and chief executive officer of Trian Fund Management LP in New York, urged the firm to make a clearer commitment to cost-cutting, put shareholder returns ahead of acquisitions and consider selling its money-management unit. Peltz's Trian was the eighth-biggest holder of State Street's shares as of June 30, according to data compiled by Bloomberg.

Hooley has cut 2,250 jobs in the past two years to lower costs, raised the firm's dividend in March to its 2008 level and announced a $1.8 billion share repurchase program through March 31, 2013.

Hooley also continued making acquisitions, agreeing in July to purchase Goldman Sachs Group Inc.'s hedge-fund administration unit for $550 million in cash. State Street completed the transaction yesterday, according to a regulatory filing.

The company plans to be "very cautious" when considering additional acquisitions and to focus on returning capital to shareholders, Hooley said today during a conference call with analysts.

GAAP Results