Ol' Blue Eyes sang about the State Street (that great street) in Chicago, but investors may find Boston's State Street more melodious. Through its flagship State Street Bank and other subsidiaries, the company provides investment management and servicing, trading, and research services. Its activities include trust and custody, fund accounting, foreign exchange, shareholder services, and other administrative services for institutional clients such as mutual and other investment funds, pension plans, insurance companies, foundations, endowments, and investment managers. State Street has more than $21 trillion of assets under custody and administration, in addition to some $2 trillion under management.
Other subsidiaries of State Street include asset manager State Street Global Advisors and State Street Alternative Investment Solutions. Boston Financial Data Services, a joint venture with DST Systems, provides shareholder services to mutual funds and other clients.
At the vanguard of financial services technology, State Street banks on its computerized analytical and organizational tools to woo and retain clients and continues to enhance its systems. Among its offerings are foreign exchange trading platform FX Connect and Global Link, which provides market research and portfolio analysis.
State Street, which has operations in more than two dozen countries, earns more than a third of its revenue outside of the US and has been investing in international growth. It expanded its global fund administration and alternative asset servicing capabilities in 2010 when it acquired Channel Islands-based Mourant International Finance Administration. Also that year the company bought the securities services business of Italian bank Intesa Sanpaolo. It acquired Bank of Ireland Asset Management and Swiss analytics firm Complementa in 2011, further increasing its presence in markets outside the US.
At home in the States, the company acquired Boston-based agency brokerage firm Pulse Trading. The deal boosted State Street's electronic trading capabilities, including block crossing and blotter-scraping, for its transition management business. In 2012 the company arranged to buy hedge fund administrator Goldman Sachs Administration Services, which has some $200 billion in assets, from Goldman Sachs for $550 million.
After reporting more than $2 billion in losses in 2009 (in part due to lower equity market valuations and lending volumes plus an increase in bankruptcies), State Street returned to profitability in 2010. The company's acquisitions that year, coupled with improved equity markets, helped to boost transaction volumes and revenue. These same factors helped contribute to growth in 2011, too, as revenues climbed some 7% to $10.3 billion. The company's assets under custody have also been climbing as the company adds new clients and new products like exchange-traded funds (ETFs). Cost-cutting initiatives, including layoffs, have helped State Street's bottom line as well.
But the company is not quite out of the woods yet as net losses from investment securities have been a drag on its earnings. In late 2010 State Street bit the bullet and sold some $11 billion in bad assets, primarily mortgage-backed securities acquired during the frenzy for subprime lending, at a $344 million loss. – less