State Street investors seek new blood at top

Four of the 10 largest shareholders at State Street are agitating for the removal of the custody bank’s chief executive or chief financial officer amid growing frustration at its stagnant share price and the pace of cost-cutting.

Some of the investors told the Financial Times that they had communicated their discontent to the board, directly and indirectly, and that they wished to see either Joseph “Jay” Hooley, chief executive, or Edward Resch, chief financial officer, replaced with “new blood”.

“There is nobody in that business who is bigger than the brand name. Somebody has to be responsible,” said one of the four top 10 shareholders who spoke on the condition of anonymity along with the other three. The four represent a 10th of State Street’s equity.

The increased pressure on State Street, which is due to report third-quarter earnings on Tuesday, comes a year on from the publication of a white paper calling for aggressive cost-cutting and restructuring by the activist investor group Trian, which owns 2.05 per cent of the Boston based bank.

State Street is one of the world’s largest custody banks, a trusted role at the heart of the financial system, with over $22tn in assets under custody and administration, and $1.9tn under management in its investment advisory arm. Last year the group had revenues of $9.5bn, and has a market capitalisation of almost $20bn.

State Street defended its performance on Monday saying that “despite the challenging operating environment we are confident of the resilience of our business model and proud of our track record”.

Two non-executive directors also expressed confidence in the executive team. Gregory Summe said that he is “very much supportive of State Street’s programme and the direction they are headed is the right one”. Both declined to discuss any conversations with investors.

Before the financial crisis shares in State Street traded above $80 per share, but collapsed to less than a quarter of that price in early 2009. At $41.4 per on Monday its shares are up 2.3 per cent for the year so far.

The group is in the early stages of implementing a cost-cutting plan designed to improve profitability but margins have not moved upwards this year as the group has struggled to grow revenues.

“Just cut your bonus pool to get to the target,” said one longstanding shareholder who, while prepared to give Mr Hooley “one more chance”, said that Mr Resch’s “credibility is quite low”.

Much of the criticism centres on the way the group, one of the best-capitalised US banks, relayed the future impact of new regulations to its balance sheet.

In July State Street surprised investors when it said that its tier one capital ratio would be 9.8 per cent under new rules, lower than expected. The number was then revised up to 11 per cent in September.