State Street has high hopes for ‘front-to-back’ offering

Ron O'Hanley
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A tough past six months for securities services companies generally was underscored last week with State Street’s quarterly result, which was the first presided over by Ron O’Hanley who was promoted to chief executive in January. Revenue and net income were down for the quarter.

However, State Street remains the world’s largest securities servicing firm, just a whisker ahead of BNY Mellon, with US$32.6 trillion in assets under custody and administration. And its funds management arm, State Street Global Advisors (SSGA), remains in the top three or four with US$2.8 trillion.

The latest results, for the March quarter, show the company’s total fee revenue was down 6.4 per cent to US$2.26 billion, compared with the first quarter last year, and net income to shareholders was down 25 per cent, to US$452 million. Assets under custody and administration slipped 2 per cent but SSGA’s assets under management inched up 3 per cent over the year.

Looking to the future, O’Hanley said in a Wall Street earnings call discussion with US brokers, that the company’s main priorities were:

  • to reignite servicing fee growth
  • to innovate and grow diversified revenue streams
  • to deploy the industry’s leading front-to-back asset servicing platform as a technology-driven scale provider
  • to generate substantial expense saves, and
  • to foster a high-performing and leaner organisation focused on execution and productivity.

Of course, what the chief executive of a big listed company tells stockbrokers and shareholders is not necessarily the story he or she tells clients and customers. But in this case, O’Hanley spoke as much as he could about next year when the “front-to-back” asset servicing platform, enhanced by last year’s purchase of front-office information provider Charles River, starts to deliver significant results, for both clients and shareholders.

He told the Wall Street brokers: “I would like to concentrate on our priority to deploy the industry’s leading front-to-back asset servicing platform. We are already making measurable progress. At the end of the first quarter, we had approximately 110 opportunities being actively pursued by our sales teams.

“Notably, we anticipate announcing a number of client adoptions of the front-to-back platform during 2019 as clients see the strong value proposition enabled by the Charles River State Street combination. We are pleased with the momentum of Charles River’s front-end offering as evidenced by its strong new bookings and remain confident in achieving our revenue and cost synergy projections announced when we acquired the business last year.”

State Street recently announced the appointment of Francisco Aristeguieta as the head of all of its international business lines, as one of several senior hires since O’Hanley became chief executive.

O’Hanley said: “I am deeply focused on simplifying the organization and ensuring we have the right leadership in order to drive our strategy and achieve results across State Street…

“I think from the beginning when we first announced the acquisition of Charles River that the front-to-back strategy would be long term. What you’re talking about here, when you do this, is a fundamental change in the way that the client itself operates. Typically, they’ve got to move off some existing systems. There are, typically, a panoply of proprietary or small outside things that they have to move off of so these take time.

“I think that we suggested, when we first talked about this, that we would expect to start seeing true front-to-back relationships in the 2020 time frame. We’re actually seeing a much faster take-up, a lot of interest. We report on that every quarter…”

– G.B.

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