A strong increase in its assets under management does not mean that State Street employees will be spared from the axe. Top executives at the Boston bank said Tuesday the bank's assets under management grew 22 percent to $1.4 trillion in 2004. They had started the year at about $1.1 trillion. Yet, CEO Ron Logue told analysts that he is still not satisfied with the level of expenses at the firm and that he expects more cuts.

The problem, in a nutshell, is that costs are rising faster than State Street can grow its top line. In the fourth quarter, for example, State Street added 10 percent to its revenues but saw operating expenses explode by 23 percent.

"I am still not satisfied with the level of expenses," Logue told analysts, according to a report in the Boston Herald. "We will continue to aggressively focus on improvement here, and I am directing the staff to continue to seek opportunities for improvement across the company."

Still, he tried to put a positive spin on the challenge. "If I had my choice of problems," he said, "I would much rather deal with solving the expense issues than trying to emulate our consistent revenue growth, which is the problem many of our competitors have."

Under Logue and his predecessor David Spina, State Street has been retooling and refocusing its business. In the firm's last analyst call in October, Logue said the bank would cut 425 jobs as part of an effort to trim $50 million of expenses. State Street employs 20,000 people worldwide. He has also tied business manager's compensation more closely to their unit's results.

In December, Logue swept the bank's chips of the 529 plan table by sending its 529 recordkeeping business to Evergreen Investment Management and OppenheimerFunds. State Street had created Schoolhouse Capital during the boom years, hoping to leverage its defined contribution recordkeeping business in the then-new 529 plan market.

It has also announced that it will sell its Bel Air Investment Advisors LLC unit in a management led buyout sometime in the first half of 2005.

Meanwhile, the firm is moving aggressively into the business of taking care of the back office for securities firms. In December, it acquired the investment accounting and administration of Axa SA for clients in France, Germany and Britain. Two years ago, it purchased Deutsche Bank AG custody and securities lending that the German back had acquired from Bankers Trust.

Those deals are paying dividends: State Street officials said that in 2004 they picked up 100 investment service clients in the United Kingdom.  

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