State Street has struggled to raise operating profit over the past four years as the U.S. Federal Reserve held its benchmark interest rate at zero to 0.25 percent since December 2008 in an attempt to stimulate borrowing and economic growth. Low rates hurt custody banks by reducing the return they make on their own investments and lending. They’ve also forced State Street to waive some fees on money-market funds to keep client returns above zero.

Rising markets helped State Street in 2012 as the MSCI ACWI Index of global equities gained 13 percent, following a 9.4 percent decline in 2011. State Street charges custody and investment management fees based on the amount of money it oversees for clients.

Assets Rise

Revenue rose 7 percent to $2.46 billion, driven by a 29 percent jump in investment-management fees as the amount of money State Street invests for clients rose. Investment assets were boosted by 13 percent, helped by $24 billion in net client deposits including $13 billion to exchange-traded funds, Hooley said in the interview. State Street is the second-biggest provider of ETFs.

Assets under custody rose 12 percent to $24.4 trillion, and the fees they generate rose 8.8 percent. Expenses increased 4.8 percent to $1.71 billion.

Clients having been taking money out of bonds and putting it into domestic and international stocks since late last year, Hooley said in a conference call with analysts. The shift helps State Street as fees for overseeing and managing stock investments are typically higher.

Hooley said he didn’t expect the shift to continue throughout 2013.

“I’m just not ready to say the all-clear signal has been given” for investors to take on more risk, he said. The unresolved debate in Washington over raising the ceiling on U.S. debt was the biggest threat to equity markets in the short term, he said.

Custody Banks

Bank of New York Mellon Corp., the largest custody bank, said on Jan. 16 that fourth-quarter net income rose 23 percent from a year earlier to $622 million, or 53 cents a share. Chicago-based Northern Trust Corp., the third-biggest independent custodian, said fourth-quarter earnings rose 29 percent to $167.7 million, or 69 cents a share.