State Street Corporation

State Street Corporation
Public
Traded as NYSE: STT
S&P 500 Component
Industry Financial services
Founded 1792 (1792)
Headquarters State Street Financial Center
Boston, Massachusetts, United States
Key people
 Jay Hooley (President, CEO, and Chairman)
Products Investment management
Revenue Increase USD 10.295 billion (2014)[1]
Decrease USD 2.037 billion (2014)[1]
AUM Increase USD 2.45 trillion (2014)[1]
Total assets Decrease USD 245.19 billion (2016)[2]
Total equity Increase USD 21.47 billion (2014)[1]
Number of employees
 29,970 (Mar 2014)[1]
Website StateStreet.com

State Street Corporation, known as State Street, is an American worldwide financial services holding company. State Street was founded in 1792 and is the second oldest financial institution in the United States of America. The company’s headquarters are at One Lincoln Street in Boston and it has offices in 29 countries around the world.

State Street is organized into three main divisions. The Global Services business is a custodian bank with $28 trillion (USD) of assets under custody and administration.[1] The Global Advisors business provides investment management services and has $2.45 trillion (USD) of assets under management.[1] The Global Markets business offers investment research and trading services to institutional investors.

History

State Street’s past can be dated back to the founding years of Boston’s banking industry. In 1792 the Union Bank became the third bank to be chartered in Boston and was located at the corner of State and Exchange Streets.[3] State Street was known as the “Great Street to the Sea” as Boston became a flourishing maritime capital. The clipper in State Street’s logo today reflects this period.

State Street's corporate headquarters located in Boston, Massachusetts. (2006)

In 1865 the Union Bank received a national charter and became the National Union Bank of Boston. State Street Deposit & Trust Co opened alongside National Union in 1891. It became the custodian of the first US mutual fund in 1924, the Massachusetts Investors Trust.[3] State Street and National Union merged in 1925.

State Street’s growth during the mid-1900s was fueled by mergers and acquisitions. It merged with the Second National Bank in 1955 and with the Rockland-Atlas National Bank in 1961. William Edgerly gained control in 1975 and shifted the company’s strategy from commercial banking to investments and securities processing.[3]

The company began investing heavily in technologies for securities management and custodian processing. It was helped by a partial acquisition of Boston Financial Data Services in 1973.[3] More than 100 top staff from IBM were headhunted by State Street as it set about implementing IBM mainframe systems.

State Street’s new building was completed in 1966 and became the first high-rise office tower in downtown Boston. In 1972 the company opened its first international office in Munich. For much of the 1980s and 1990s it expanded to foreign markets with offices in Montreal, Toronto, Dublin, London, Paris, Dubai, Sydney, Wellington, Hong Kong, and Tokyo.[3]

It was the early 1990s before State Street brought its technology platform to international markets. By 1992 most of State Street’s revenue came from fees for holding securities, settling trades, keeping records, and performing accounting.[3] It formed a new global asset management business in 1994 and in 1999 divested its retail and commercial banking businesses to Citizens Financial Group.

State Street acquired Kansas City, Missouri-based Investors Fiduciary Trust Co. in 1995 for $162 million (USD) from DST Systems, and Kemper Financial Services. In 2003 it purchased Deutsche Bank’s securities services division for $1.5 billion (USD).[4] State Street purchased Investors Financial Services for $4.5 billion (USD) in 2007.[5] In 2010 it acquired Mourant International Finance Administration and the securities services group of Intesa Sanpaolo.[3]

State Street was named by the G-20 as amongst the world’s 29 systemic banks and must meet all conditions of the Basel III accord.[6] The company now employs 29,530 people around the world.[7] It claims to have funds under management of $2.45 trillion (USD)[1] and assets under custody and administration of $28 trillion (USD), second to The Bank of New York Mellon.

Organization

State Street Global Advisors

Global Advisors is State Street’s asset management business and dates back to 1978. It provides investment management, research, and advisory services to corporations, mutual funds, insurance companies, and other institutional investors.[8] Global Advisors develops both passive and active management strategies using both quantitative and fundamental approaches.[7]

It created the first exchange-traded fund in 1993, the SPDR S&P 500, and is now one of the world’s largest ETF providers.[9] Global Advisors has staff in 27 global offices[8] and claims to have over $2.45 trillion (USD) of funds under management.[1]

In November 2014, State Street Global Advisors sold SSARIS to senior management.[10]

State Street Global Markets

Global Markets is State Street’s securities business. It offers research, trading, and securities lending services for foreign exchange, equities, fixed income, and derivatives.[11] The company claims to be a trading partner free from conflicted interests as it does not run proprietary trading books.[12] Global Markets maintains trading desks in Boston, London, Sydney, Toronto, and Tokyo.

State Street Global Services

Global Services is the investment servicing division of State Street, also known as the State Street Bank & Trust Co. It provides asset owners and managers with custodian (safekeeping, corporate actions), fund accounting (pricing and valuation), and administration (financial reporting, tax, compliance, and legal) services.[7][13]

Global Services handles assets from many classes, including equities, derivatives, exchange-traded funds, fixed income assets, private equity, and real estate. State Street now administers 40 percent of the assets under administration in the US mutual fund market.[14] Global Services also provides outsourcing for operations activities and handles $10.2 trillion (USD) of middle-office assets.[15]

Regulation

State Street is registered with the Board of Governors of the Federal Reserve System as a bank holding company pursuant to the Bank Holding Company Act of 1956.[7] It is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. Certain aspects of State Street’s public disclosure are subject to the requirements of the Sarbanes–Oxley Act of 2002.

State Street’s broker-dealer operation, known as Global Markets, is registered with and regulated by the Securities and Exchange Commission and the New York Stock Exchange in the United States.[7] The Prudential Regulation Authority and the London Stock Exchange regulate State Street in the United Kingdom.

Controversies

In 2009 the State of California alleged on behalf of its pension funds CalPERS and CalSTRS that State Street had committed fraud on currency trades handled by the custodian bank. Two executives from State Street Global Markets left the company in October 2011 following enquiries over the pricing of a fixed income transaction.[16]

State Street in December 2010 announced that it would be retrenching 5% of its workforce and effectively reducing the wages of remaining employees by 10%.[17] In March 2011 it reversed its wage-reduction decision but declared that it would still require all employees to work a longer 40-hour week.

On 28 February 2012, State Street Global Advisors entered into a consent order with the Massachusetts Securities Division. The Division was investigating SSGA’s role as the investment manager of a $1.65 billion (USD) hybrid collateralized debt obligation. The investigation resulted in a fine of $5 million (USD) for the non-disclosure of certain initial investors taking a short position on portions of the CDO.[18]

State Street Bank has been accused of "stealth outsourcing" or transferring American jobs to their outsourcing partners Syntel and HCL-India under the radar, in small increments to avoid any political backlash. State Street Bank - the second largest client of Syntel - also has a joint venture in the Indian city of Pune with them which they have the option to buy out. The controversy is compounded by the fact State Street bank received an $11.5 million tax incentive from the city of Boston to move into a new location in the South Boston Innovation District as well as 2 billion in TARP assistance all while still sending jobs overseas.[19]

During the May 2012 annual shareholders meeting, chairman and chief executive Jay Hooley was shouted down on numerous occasions by protesters in relation to the outsourcing and other grievances.[20]

See also

State Street Bank v. Signature Financial Group is the landmark case in which the Court of Appeals for the Federal Circuit ruled (23 July 1998) that a computer algorithm can be patented to the extent that it produces "a useful, concrete and tangible result".

References

  1. 1 2 3 4 5 6 7 8 9 ""Annual Report (Form K-10) - 2014"" (PDF). State StreetCorporation. Retrieved 4 December 2015.
  2. ↑ http://www.forbes.com/companies/state-street/
  3. 1 2 3 4 5 6 7 FundingUniverse, 2014, History of State Street Corporation, retrieved 22 June 2014
  4. ↑ USATODAY.com, 2002, State Street will become largest securities services firm, retrieved 22 June 2014
  5. ↑ State Street, 2007, Press Release, retrieved 22 June 2014
  6. ↑ Smith, Geoffrey, 2011, "Bucket List: G20 Panel Names Top Global Banks", The Wall Street Journal, retrieved 22 June 2014
  7. 1 2 3 4 5 Bloomberg Businessweek, 2014, State Street Corp snapshot, retrieved 22 June 2014
  8. 1 2 State Street, 2014, About SSgA, retrieved 22 June 2014
  9. ↑ Ryan, Jen, 2007, "Spyders Widen Web", TheStreet, retrieved 22 June 2014
  10. ↑ Sovereign Wealth Fund Institute. "State Street Sells Hedge Fund Unit SSARIS". Retrieved 21 November 2014.
  11. ↑ State Street, 2014, About SSGM, retrieved 22 June 2014
  12. ↑ State Street, 2014, Equities Trading, retrieved 22 June 2014
  13. ↑ State Street, 2014, About SSGS, retrieved 22 June 2014
  14. ↑ State Street, 2014, Fund Administration, retrieved 22 June 2014
  15. ↑ State Street, 2014, Investment Operations, retrieved 22 June 2014
  16. ↑ McDaniel, Kip, 2011, "State Street's McLellan, Pennings Depart Amidst Question Over Transition Cost", aiCIO, retrieved 12 December 2013
  17. ↑ Van Sack, Jessica, 2010, "Days to get longer at State Street", BostonHerald.com, retrieved 4 October 2012
  18. ↑ Galvin, William, 2012, "Secretary Galvin Fines State Street Global Advisors $5 Million For Role In Mortgage-Backed CDO", Securities Division, retrieved 1 March 2012
  19. ↑ http://wgbhnews.org/post/stealth-outsourcing-state-street WGBH -Stealth outsourcing at State Street bank?
  20. ↑ http://www.reuters.com/article/2012/05/16/statestreet-protesters-idUSL1E8GG9BF20120516 Reuters -Protester shouts disrupt State Street annual meeting
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