GLOBAL – Ratings agency Fitch has downgraded State Street Corp., saying there are potential problems with hiring and training new staff while integrating the Global Securities Services acquisition.
Fitch lowered State Street’s rating to A/B from A and revised its rating outlook to negative from stable. It also lowered Northern Trust’s rating by the same margin, saying the Chicago-based bank has “proved more sensitive to external economic conditions” than anticipated. Fitch assigned a stable rating to Northern Trust.
Fitch said State Street's earnings in recent quarters have been “well below their historical trajectory” due to external pressures. These pressures include low interest rates, low transaction volumes and soft equity markets.
“Management has been able to offset some of this pressure, by controlling expenses and installing new business growth,” Fitch said. It added that State Street's 1.5 billion-dollar acquisition of Deutsche Bank's GSS arm “continues to progress” towards management’s goals
But the agency saw possible problems. “The negative outlook signals potential execution risk in hiring and training new staff while integrating the acquisition of GSS,” it said.
“A smooth integration of GSS coupled with returning staffing to optimal levels and restoring TCE tangible common_equity toward previous levels will be needed to return State Street to a stable rating outlook.”
The comments come against the backdrop of a larger than expected take-up of the bank’s voluntary redundancy programme.
“We remain the highest rated of the custody and trust banks,” said spokeswoman Hannah Grove. “We remain very confident of meeting our financial goals for GSS.” She said State Street is continuing to hire people and that it retains “considerable bench strength”.
At a presentation earlier this week, Joseph Hooley, executive vice president and head of investor services, said of the GSS purchase: “The integration is on schedule and will be completed by the middle of 2004, as it was anticipated.”
“Before the acquisition, we were a leader in the US and we wanted to grow globally. Now we are the world’s largest investment services provider with 8.5 trillion dollars in assets in assets under custody, the world’s largest institutional investment manager with 901 billion dollars in assets under management, the largest provider of securities finance services, a premier provider of foreign exchange services”.