Bank of New York Mellon Corp and State Street Corp , the largest U.S. custody banks, reported higher quarterly profits on Tuesday as a rise in stock prices helped them earn more from managing client funds, helping to offset low interest rates.

Low rates have depressed fees for the companies, as well as for smaller rival Northern Trust Corp , in areas ranging from securities lending to managing money market funds. Northern Trust is due to report earnings on Wednesday.

Boston-based State Street, which has been managing money for 218 years, said operating revenue rose 6 percent to $2.16 billion. Revenue at BNY Mellon, which is based in New York, rose 3 percent to $3.3 billion.

I continue to be optimistic, but we are still in the early stages of an economic recovery and it's still somewhat fragile, BNY Mellon Chief Executive Bob Kelly told Reuters.

Kelly said regulatory changes such as higher capital requirements for banks, as well as the possibility of a tax on U.S. banks, were weighing on the industry.

But State Street Chief Executive Joseph Hooley said on a call with analysts he believed regulatory changes could in fact provide opportunities for his company to expand its servicing business.

State Street shares were up more 2.5 percent after Hooley's upbeat comments while BNY Mellon shares were down 0.5 percent.


Both companies reported an increase in assets under custody and administration, which includes services such as account and record-keeping for large pension and hedge funds.

BNY Mellon's assets under custody and administration increased 6 percent from a year earlier to $21.8 trillion, while State Street's climbed 16 percent to $19.03 trillion.

Compared to the first quarter, however, both reported lower numbers, as market tumult related to Europe's sovereign debt crisis and the U.S. equity flash crash shrank assets at many firms.

BNY Mellon's assets under management increased 13 percent from a year earlier to $1 trillion but were off 5 percent from the first quarter. State Street, whose assets stood at $1.78 trillion, reported a 14.5 percent gain from a year earlier but a 7.6 percent drop from the first quarter.

BNY Mellon reported second-quarter profit of $658 million, or 54 cents per share, up from a year-earlier profit of $176 million, or 15 cents per share.

Operating earnings jumped to $668 million, or 55 cents per share, from $267 million, or 23 cents per share, a year earlier.

State Street said operating profit climbed 5 percent to $464 million, or 93 cents per share, in the second quarter from $441 million, or 89 cents per share, a year ago.

The company released some earnings numbers two weeks ago when it also announced plans to take a $251 million after-tax charge.

State Street reported net income of $432 million, compared with a loss of $3.18 billion a year earlier, after taking a charge to bring previously unrealized losses in its asset-backed commercial paper program onto its balance sheet.

State Street shares were trading at $38.29 at mid-morning, while BNY Mellon stock was at $25.51.

(Editing by John Wallace and Ted Kerr)