State Street Boston Corporation Business Information, Profile, and History
Boston, MA 02110
History of State Street Boston Corporation
State Street Boston Corporation is a bank holding company conducting business principally through its subsidiary, State Street Bank and Trust Co. Descended from one of the first banks in America--the Union Bank, which was founded in 1792--State Street is now the nation's largest custodian and trustee for mutual funds and pension funds, responsible for an estimated 40 percent of the more than $1 trillion in securities held by America's mutual funds.
Since the 1970s, State Street has become one of America's banking success stories. Beginning in that period, through a strategy of aggressive diversification and the use of the most advanced technologies, State Street rapidly evolved from a traditional, gentlemanly, old-line Massachusetts financial institution into a global banking powerhouse.
State Street has deep roots in the commercial history of Boston, going back to the days when this city was a bustling shipping port and main business artery for the new republic. In the closing years of the 18th century, a group of prominent Bostonians gathered together to establish a new bank, which would be the third bank in Boston. John Hancock, Massachusetts' first governor, signed the bank's charter on June 25, 1792. The bank, named the Union Bank, was located at the corner of State and Exchange Streets and had as its first president Massachusetts Lieutenant Governor Moses Gill.
At that time State Street was the main thoroughfare in colonial Boston and a significant crossroads in America. Bracketed by the State House at one end and the Long Wharf at the other, State Street was a center of both commerce and politics. It was here, for instance, that the first public reading of the Declaration of Independence took place. It was also where the famous trial of Captain Kidd took place. And it was on State Street that the first Boston merchant, John Coggan, had set up shop.
State Street was also known as the "Great Street to the Sea," and the economic growth of the new bank was closely tied to Boston's flourishing shipping industry. During that romantic period, sleek clippers criss-crossed Boston Harbor, escorting incoming ships, laden with cargo, to shore. Boston was by the mid-19th century in its heyday as a maritime capital. Some of the wealth from that trade would make its way into the coffers of the bank.
Meanwhile, the lore, mystique, and memorabilia of this colorful shipping past would be ardently celebrated and preserved by Union and, in its later incarnation, State Street, during the more than 200 years of its existence. For instance, ship models, prints, harpoons, and figureheads would adorn the offices of State Street Bank for years. The bank would also publish over two dozen monographs recalling Boston's maritime history. In 1992, the bank's pride in this past would lead it to sponsor Sail Boston, an event that brought a flotilla of elegant boats from all over the world into Boston Harbor. And finally, the bank's logo, a silhouette of a clipper ship, is itself a form of homage.
Many of Boston's merchant princes and community leaders were associated with Union Bank during the first century of its operation. For instance, the bank had real estate deals with such notable local families as the Parkmans, Sargents, and Quincys, and among its early officers was Oliver Wendell, the great-grandfather of Oliver Wendell Holmes.
The bank, located at 40 State Street, had its charter renewed several times, and in 1865, the directors applied for and received a National Charter. At that time, the bank was renamed the National Union Bank of Boston.
Going into the early years of the 20th century, National Union had survived to become the oldest bank in continuous operation in Boston and the second oldest bank in America. During all these years, despite wars and the fluctuating fortunes of the new country, the bank thrived, and it is a mark of its stability that it never failed to declare semi-annual dividends.
On July 1, 1891, National Union would have a new neighbor and banking competitor on State Street. On that day, the State Street Deposit & Trust Company was chartered and began business, with offices in the Exchange Building on State Street. The company was started by a group of directors and officers from the Third National Bank, and it opened for business with a capital of $300,000. Shortly afterward, Third National merged with Shawmut Bank, and State Street became entirely independent. In 1897, the bank's name was shortened to State Street Trust Company.
State Street Trust grew steadily during these early years. From 1900 to 1925, deposits increased from roughly $2 million to over $40 million. In 1900, the company moved into offices in the Union Building, on the corner of Exchange and State Streets. In 1911, the main office moved again to another part of State Street. Five years later, it purchased the assets and good will of the Paul Revere Trust Company. The year 1924 proved an historic turning-point for State Street, though it would take many years before the significance of the event would be fully appreciated. In that year, Massachusetts Investors Trust chose the bank as custodian of the country's first mutual fund.
A year later, National Union Bank merged with State Street and the alliance now fattened deposits at State Street to over $57 million. That same year, State Street moved once again and the new location, 53 State Street was, by coincidence, the site of the company's original location. The interior of this new office was an evocation of Boston history, designed to recall the old countinghouses of Boston merchants during the first part of the 18th century. Traditional oak and wood paneled rooms, reproductions of colonial hanging lanterns, hand-forged wrought-iron grillwork, mullioned windows, and tables and chairs copied from old tavern furniture provided a living time capsule of a bygone era--and made the office something of a local landmark.
The man largely responsible for the bank's devotion to its historic roots--and for much of its steady success during these years--was Allan Forbes. Joining State Street in 1899 shortly after graduation from Harvard, Forbes worked his way up from assistant treasurer to president in 1911, and was, from 1950 until the time of his death in 1955, chair of the board. During his 56-year career at the bank, deposits increased from less than $2 million to $187 million.
The identification of the bank with its maritime past would be one of Forbes's lasting legacies. Early in his career, he began to collect and display historical maritime artifacts in State Street's offices. The bank abounded in ship models, prints, harpoons, and figureheads, part of the Forbes collection. His own office was atmospherically steeped in his antiquarian passion; heavy ceiling beams and a great kitchen fireplace recalled the 17th century, while Forbes himself sat in a great mid-18th century, slat-backed armchair surrounded by ship models, prints, and a great sea chest that served as a drawer for papers. This office has been preserved at the bank's 53 State Street branch.
During these years, State Street's growth was fueled by mergers. One of the more significant of these mergers was with the Second National Bank in 1955. Six years later, State Street incorporated the Rockland-Atlas National Bank, which represented three banks dating from the 1800s--the Webster, Rockland, and Atlas banks--that had consolidated in 1948. In 1960, State Street incorporated as the State Street Boston Financial Corp., a one-bank holding company. Its present title, the State Street Boston Corporation, was adopted in May, 1977.
In 1963, ground was broken for the State Street Bank building, which upon completion in 1966 was the first high-rise office building in downtown Boston. It was also the tallest bank building in New England. In 1964, State Street International opened in New York and, six years later, at the dawn of the 1970s, State Street took its first step into the global market, with the opening of an office in Munich.
The 1970s were a bruising decade for the nation's banks, and State Street was no exception. By the mid-1970s, the bank was suffering from major real estate lending problems. Fortunately, a new chief executive officer, William Edgerly, took control in 1975 and began hammering out an ambitious new strategy to turn the company around. He had already made his mark at the company as an outspoken member of the board of directors. Edgerly brought in new managers to help propel the bank into the direction that it had to go if it was to continue to hold its own in the competitive New England banking community. At that time, the bank had four major lines of business: commercial banking, financial services, investment management, and regional banking. Instead of continuing on its present path, Edgerly decided State Street should move away from its traditional commercial role and, rather than expand its branches, shut them down to concentrate on building up its business in investments, trusts, and securities processing. For one thing, it had an early start in the mutual funds market and was ideally situated to build upon its substantial reputation and assets in that area. State Street pushed aggressively into an area that many banks had shunned--the complex, high-technology processing of asset management, global custody, 401(k) retirement plan accounting, and trusteeship of debt securities based on securitized assets.
At the same time, Edgerly recognized that State Street needed to develop its technology if it was going to create a niche for itself with its data processing and telecommunications abilities. And so the company began investing in a big way--an estimated 25 percent of its operating costs--in technology.
In 1973, the company had already made a key move in developing its technical know-how by buying 50 percent of Boston Financial Data Services and then using the software and data processing company for its shareholder-accounting and customer-service functions. The hardware backbone of State Street's numbers crunching was an IBM-mainframe-based Horizon computer system. Built from thousands of modules loaded into a mainframe, each module in Horizon is designed for a specific task and can be accessed at personal computer workstations, using a variety of software. The technological command post for the company became the bank's data-processing headquarters, an office complex opened in Quincy, Massachusetts, a suburb of Boston, in 1974.
Edgerly, who retired as CEO in 1992, brought the stately Boston bank into the high-tech age, finding his inspiration in IBM and its emphasis on research and development. But then Edgerly himself had a degree in engineering from MIT, as well as his M.B.A. from Harvard, and had come to State Street from a petrochemical firm, Cabot Co., rather than from the banking ranks. At State Street he recruited many top-ranking executives from IBM, and by the early 1990s it was estimated that more than 100 veterans from IBM were serving in senior management positions at State Street. Beyond IBM's devotion to technical innovation, Edgerly also admired the company's aggressive approach to sales, and he designed the State Street Institute based upon a sales training class at IBM. At the school, senior executives are required to teach newcomers.
The timing was right for State Street's new technology-based approach. In 1974, the Employee Retirement Income Security Act (ERISA) was passed and, as a result, companies now had new responsibilities when it came to reporting to the government on their pension plans. Recognizing a window of opportunity, State Street developed software that emphasized more advanced record-keeping abilities. Other software systems were spun off to help report on the financial ebb-and-flow of Ginnie Mae (GNMA) securities, international pension assets, and internationally indexed assets.
Typical of its services, State Street designed Pepsico Inc.'s $350-million 401(k) savings plan. In addition to providing accounting, trust, investment management, and benefit payment services for Pepsico, State Street also created a self-managed system whereby employees can transfer funds and evaluate their accounts daily by telephone.
Meanwhile, State Street has been moving assertively into the international market, establishing business footholds around the world. Its advanced numbers-crunching abilities and telecommunications network provided momentum for this global expansion. By the early 1990s, State Street customers could have direct, interactive computer access to their investment information from anywhere in the world, either through their mainframes or through personal computers in the office. They could design their own integrated global reports using the latest multicurrency accounting systems available.
During the 1980s and 1990s, the company established offices throughout the globe, including Montreal, Toronto, London, Paris, Munich, the Cayman Islands, Dubai, Sydney, Melbourne, Wellington, Hong Kong, Taipei, and Tokyo. An international financial caretaker of pensions, securities, and investments, State Street had become recognized as the largest global custodian in Australia, New Zealand, and Canada and as a leading global custodian in Europe. In 1992, the company was selected as the first non-national custodian of a Swiss pension fund and the first non-Scandinavian custodian bank for a Scandinavian institutional investor. That year, the company opened a treasury center in Luxembourg, which joined the Boston, London, Hong Kong, and Tokyo facilities in providing 24-hour capital market services around the world.
While developing its portfolio of services to companies, State Street has downplayed its traditional lending activity, which has helped it weather the recession and the rash of loan defaults that have battered many New England banks. Lending comprises an estimated 16 percent of State Street's business as compared to 60 percent at many other area banks.
At the same time, State Street's continuing financial health has made it the envy of many banks. The price of State Street stock at the end of 1991 was 17 times what it was 10 years earlier. Investors in State Street earned a total return of 33 percent per year for the decade of the 1980s. Fortune magazine ranked State Street number one in total return to investors during the period spanning 1982 to 1992, in a survey of the 100 largest banks in the United States.
State Street has also been ranked by Pensions & Investments as the third largest manager of tax-exempt assets in the United States. By 1992, assets under management at State Street totaled $111 billion. Ranked at the end of 1991 as the 37th largest bank holding company in America, State Street reported $16.5 billion in assets.
Within its regional home base, State Street makes loans, primarily to medium-sized businesses, and provides support for a variety of community-based organizations. These include the Metropolitan Boston Housing Partnership, which has rehabilitated buildings throughout the Boston inner city, and the Boston Private Industry Council, which works to improve the city's public schools. The bank has also awarded grants to creative partnerships in science, finance, and community development.
Meanwhile, the future looks promising. Industry analysts predict that the global custody business will soar by the year 2000, with institutional investors from overseas increasingly investing in this country and more U.S. pension fund managers scouting the world for international prospects. This trend should help State Street solidify its position as a leading worldwide servicer of financial assets.
Principal Subsidiaries: State Street Bank & Trust Co.; State Street Boston Credit Co., Inc.; State Street South Corp.; SSB Investments, Inc.; State Street Global Advisors, Inc.; State Street Global Advisors, U.K., Limited; and Boston Financial Data Services, Inc., (50%)
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