State Street Overview: State Street, headquartered in Boston, is major global player in these lines of business:
- Investment Research and Trading
- Investment Management
- Investment Servicing
- Custody and Portfolio Accounting
- Performance Measurement
- Cash Management
- Treasury Services
- Securities Lending
- Brokerage Services
- Wealth Management and Private Banking
- Trade Execution Systems
Many of the above functions come under the blanket title of back office operations. State Street is a leading provider of these services to other financial firms that choose to outsource.
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Size: State Street reports these figures as of 3Q 2012:
- Employees = over 29,000
- Assets Under Management = $1.9 trillion
- Assets Under Custody and Administration = $22 trillion
- Operations in 29 Countries
- Top Provider of U.S. Mutual Fund Custody and Accounting Services
- Top Servicer of U.S.Pension Plans
- Top Investment Manager of Institutional Assets Worldwide
- Number 3 Worldwide in Assets Under Management
- Top Custodian Worldwide
Positives: Prior to the 2008 financial crisis, State Street reported operating earnings per share growth consistently over 30 years.
State Street has exited its original retail and commercial banking business, deciding to focus instead on the other lines of business listed above, which have long since become its core competencies.
Negatives: State Street, as a major player in services involving counter party risk (that is, risk that one party will fail to make promised delivery of securities or cash), has some potentially large exposures. However, actions taken by the federal government subsequent to the 2008 financial crisis have been designed to minimize the associated risk. Nonetheless, State Street took a large writeoff on Greek government debt in 2012.
In October 2012, reports surfaced that four of the ten largest shareholders were pressing for the removal of State Street’s CEO and CFO, unhappy with the stock price, which has stagnated at about half its level prior to the 2008 financial crisis. Activist shareholders have been calling for intensive expense reduction that includes bonus cuts and clawbacks.