Bank of New York Mellon Corp and Northern Trust Corp , two large U.S. custodial banks, reported disappointing profit as declines in client assets depressed fees, while State Street Corp topped forecasts.

Profit attributable to common shareholders fell 64 percent at Northern Trust, 57 percent at Bank of New York Mellon and 16 percent at State Street. Bank of New York Mellon also cut its quarterly dividend by 63 percent, citing a desire to build capital and save $700 million a year.

In afternoon trading, Bank of New York Mellon shares were down 3.9 percent, Northern Trust fell 6.4 percent, and State Street rose 14.4 percent.

Bank of New York and Northern Trust's numbers were significantly below expectations, said Gerard Cassidy, an analyst at RBC Capital Markets. State Street's net interest margin did not decline as much, and it was more successful reducing operating expenses.

The three companies provide processing and back-office services to institutional clients as custodial banks, and are also large asset managers.

Though their service-driven businesses have been considered relatively stable as mortgage and trading losses have soared at consumer and investment banks, custodial banks are seeing results hurt because of lower business volume.

Revenue headwinds for the trust banks were much more severe than we had expected, especially in the foreign exchange and securities lending areas, said Murali Gopal, an analyst at Keefe, Bruyette & Woods Inc. The market is coming to the conclusion that 2009 is going to be a much more challenging year than had been expected.

PROFITS FALL

Bank of New York Mellon's quarterly profit fell to $322 million, or 28 cents per share, from $746 million, or 65 cents per share, a year earlier.

Excluding items, profit was 53 cents per share, below the average analyst forecast of 63 cents, Reuters Estimates said.

The New York-based bank cut its quarterly dividend to 9 cents per share from 24 cents. Custodial assets fell 16 percent to $19.5 trillion, while assets under management fell 20 percent to $881 billion.

State Street, based in Boston, said profit fell to $445 million, or $1.02 per share, from $530 million, or $1.35.

Operating profit was $1.04 per share, 2 cents more than expected. Expenses fell 26 percent, while unrealized losses on investments and off-balance-sheet commercial paper programs fell to $9.5 billion from $9.9 billion at year-end. Custodial assets fell 24 percent to $11.3 trillion, and assets under management slid 29 percent to $1.4 trillion.

Chicago-based Northern Trust said quarterly profit fell to $138.8 million, or 61 cents per share, from $385.2 million, or $1.71. Analysts expected 96 cents. Custodial assets fell 29 percent to $2.84 trillion, while assets under management fell 33 percent to $522.3 billion.

Bank of New York Mellon has received $3 billion, State Street $2 billion and Northern Trust $1.5 billion of taxpayer funds from the government's Troubled Asset Relief Program.

(Additional reporting by Joseph A. Giannone and Christian Plumb; editing by John Wallace and Tim Dobbyn)

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