State Street Corporation Business Information, Profile, and History
Boston, Massachusetts 02110
State Street's reputation as a financial services leader is grounded in centuries of history. Our roots can be traced back to some of the region's strongest, proudest and most resilient banking companies. That tradition of stability, fortitude and innovation has continued as the company has evolved from a local merchant bank into a global financial services company delivering technology and information solutions for investors around the world.
History of State Street Corporation
State Street 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 the United States--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, with $6.2 trillion under custody and $763 billion under management, as well as the sixth largest investment manager and the largest financial services specialist globally.
Since the 1970s, State Street has become one of American banking's great 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.
Maritime Merchant Bank Origins
State Street has deep roots in the commercial history of Boston, going back to the days when the 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 the United States. 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. In addition, 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 also would publish more than 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. Finally, the bank's logo, a silhouette of a clipper ship, was 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 the United States. 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 more than $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 goodwill 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.
Recognizable Identity Emerging in the Early 20th Century
A year later, National Union Bank merged with State Street and the alliance now fattened deposits at State Street to more than $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 mostly 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 State Street Boston Financial Corp., a one-bank holding company. The title 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.
Critical Change in Direction in the 1970s
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. 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 was designed for a specific task and could 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 on 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 could transfer funds and evaluate their accounts daily by telephone.
Meanwhile, State Street moved 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.
Exploiting Unique Capabilities in the 1980s and 1990s
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 downplayed its traditional lending activity, which helped it weather the recession and the rash of loan defaults that battered many New England banks. Lending comprised 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 made it the envy of many banks. The price of State Street stock at the end of 1991 was 17 times what it was ten 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 was also 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 the United States, State Street reported $16.5 billion in assets.
Within its regional home base, State Street made loans, primarily to medium-sized businesses, and provided support for a variety of community-based organizations. These included the Metropolitan Boston Housing Partnership, which rehabilitated buildings throughout the Boston inner city, and the Boston Private Industry Council, which improved the city's public schools. The bank also awarded grants to creative partnerships in science, finance, and community development.
Marshall N. Carter, formerly of Chase Manhattan Corp.'s global custody unit, became State Street's CEO in 1991, and soon found himself at the center of converging forces in the banking industry. State Street's emphasis on technology had resulted in an organization that a February 1992 American Banker called "less a bank than a provider of information processing services." Most of State Street's revenue now came from fees for holding securities, settling trades, record keeping, accounting (including multicurrency accounting) and net asset value computation. A secondary stream of revenue came from fees for managed asset accounts. The result was a balance sheet in which income derived from selling fiduciary services accounted for 70 percent of overall revenues, against the background of the past decade's increasing globalization of U.S. pension fund investment. This was a highly favorable position to be in, considering that fee-based income from trading and other transactions were widely regarded as an important element for future banking profitability.
Others in the trust field found State Street a difficult competitor, as it leveraged its advantageous position to acquire new business. One such signal win was the California Public Employees Retirement System, a $67 billion custody account. State Street showed the ability to offer a sophisticated package while charging less in fees to such institutional investors, an edge that the company's leadership attributed to superior technology and economies of scale. Competition was intensified by the entry of such investment banking firms as Morgan Stanley & Company, and veteran players in the global custody market began to fear that price wars would curtail profitability.
State Street followed Citicorp and other money center banks in the launch of a commercial paper program, formerly the preserve of investment banks. Under the program, named Clipper Receivables Corp., investors purchased asset-backed commercial paper, and the proceeds were used to fund loans by participating regional banks to investment grade companies.
By the mid-1990s, State Street found itself on the defensive. While the bank had enjoyed a pioneering position in fee-based services through the early part of the decade, other banks had ultimately followed suit. With State Street already holding some 25 percent of the mature master trust, pension fund, and mutual fund markets, bank leadership realized that it would be difficult to capture a significantly larger share. State Street knew that it would be difficult to gain a significantly larger share as well. Therefore, it channeled its energies into retaining existing business and offering new products and advanced technologies.
The mid-decade mark also brought a new direction in global markets. Whereas State Street had primarily focused on securities custody internationally, the company now began seeking to establish itself as a money manager. In 1994, it formed a new global money management division, aiming for a goal of 30 percent annual growth through the end of the 1990s. It subsequently launched an international ad campaign aimed at institutional investors. Although global custody would remain critical, the bank anticipated high profit margins in its new role as asset manager.
In December 1996, in an interview with American Banker, State Street CFO Ronald O'Kelley discussed the bank's long-term expectations: First, that an aging population would result in growth among privately managed investment funds; second, that relatively few banks worldwide would invest in expensive technology of their own, preferring instead to employ specialists in securities processing and custody-related services; and third, that U.S. institutional investors and pensions were increasingly looking to foreign investments, as international capital markets grew. Consequently, the company's goals were to provide advanced services not generally offered by competitors, and to continue expanding outside the United States.
A few months after this, as assets under custody passed $3 trillion, State Street changed its name from the previous State Street Boston Corporation to simply State Street Corporation. The distinctive clipper ship logo also was redesigned.
As the end of the century approached, State Street continued to produce impressive growth and innovation. The latter included the introduction of a system designed to automate the execution of fixed income trading in the U.S. Treasury, corporate, mortgage-backed, and asset-backed bond markets--a process that had remained tenaciously manual in the past. State Street's assets under custody grew to $6 trillion, and assets under management to $600 billion. State Street also divested itself of its retail and commercial banking business, selling these to Citizen's Bank, of Providence, Rhode Island; henceforth, there would be no distractions from the company's principal focus.
Since the dawn of the 21st century, David A. Spina had taken over as chairman and CEO from Marshall Carter. In 2003, State Street completed the acquisition of a substantial portion of Deutsche Bank's Global Securities Services, seemingly showing no change in the pattern of steady growth and financial performance.
Principal Subsidiaries: State Street Bank & Trust Co.; Princeton Financial Systems, Inc.
Principal Competitors: The Bank of New York Company, Inc.; Citigroup Inc.; Mellon Financial Corporation.
- Key Dates:
- 1792: Union Bank becomes the third bank chartered in Boston.
- 1865: Union Bank receives a national charter; the bank is renamed National Union Bank of Boston.
- 1891: State Street Deposit & Trust Company is chartered in Boston.
- 1897: State Street's name is shortened to State Street Trust Company.
- 1924: State Street Trust becomes custodian of the nation's first mutual fund.
- 1925: National Union Bank and State Street merge.
- 1955: State Street merges with Second National Bank.
- 1960: State Street incorporates as State Street Boston Financial Corp., a one-bank holding company.
- 1961: State Street merges with Rockland-Atlas National Bank.
- 1964: A State Street office is opened in New York.
- 1972: State Street becomes international, opening an office in Munich.
- 1975: State Street begins changing its focus from commercial banking to investments, trusts, and securities processing.
- 1977: State Street becomes State Street Boston Corporation.
- 1991: State Street Boston is ranked as the 37th largest holding company in the United States.
- 1997: Company adopts the name State Street Corporation.
- 2003: State Street completes the acquisition of a substantial portion of Deutsche Bank's Global Securities Services.
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