(Bloomberg) -- State Street Corp., the third- largest custody bank, said third-quarter profit fell 0.6% as revenue from foreign-exchange trading declined and low interest rates continued to depress earnings.

Net income on an operating basis declined to $473 million, or 99 cents a share, from $476 million, or 96 cents, a year earlier when there were more shares outstanding, the Boston- based company said today in a statement. Excluding certain items, 22 analysts surveyed by Bloomberg estimated earnings of 96 cents a share on average.

“They’ve done generally all right in winning new customers, but the interest rate environment has just been stagnant, more than anything,” Marty Mosby, a Memphis, Tennessee-based equity analyst at Guggenheim Securities LLC, said in an interview before results were announced.

State Street Chief Executive Officer Joseph Hooley has sought to boost shareholder returns by repurchasing shares, increasing the firm’s dividend and cutting jobs. Four large investors, frustrated with State Street’s share performance, have pushed the company’s board to replace Hooley or Chief Financial Officer Edward Resch, according to a report yesterday in the Financial Times.

State Street gained 3.2% this year through yesterday, compared with a 16% advance by rival Bank of New York Mellon Corp. and a 15% increase by the Standard & Poor’s 20-company index of asset managers and custody banks.

Sales in the third quarter declined 2.7% to $2.35 billion, hurt by a 44% decrease in foreign-exchange fees.

‘Challenging’ Environment

“Despite the challenging operating environment, we are confident in the resiliency of our business and proud of our track record,” Carolyn Cichon, a spokeswoman, said yesterday in a telephone interview.

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.

State Street’s operating profit excludes money earned from the sale or maturing of bonds whose value was written down in May 2009, which the company records as “discount accretion” within net interest income.

Custody banks keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds. State Street also manages investments for individuals and institutions.

Results were announced before the start of regular U.S. trading.