Custodian groups under pressure
Signs of the pressures global custodians are under are showing up with revenues at State Street Global Securities Services division, which it recently bought from Deutsche Bank, set to fall by $124m (E113m) dollars this year, as the parent posts “disappointing” first-quarter earnings.
Rival global securities services provider Northern Trust says it is undergoing an “intensive review” of its business and operations following a sharp decline in quarterly earnings to $94.7m from $127.6m a year before
The State Street news followed the announcement in April of 1,800 job cuts in addition to the 1,000 job losses associated with the GSS acquisition. The jobs would go through voluntary early retirement and enhanced severance programmes in a bid to trim 125 million dollars from its costs in 2003, the bank says.
The GSS business – which it bought for $1.5bn from Deutsche in January, had an annualised revenue of $700m, dollars when the deal was announced in November last year.
“Based on the first two months of operations, the business as acquired is generating approximately $576m of annualised revenue,” the bank says in its first-quarter earnings statement. The lower revenue reflects the decline in world stock prices, delays to the closing of the deal in Austria and Italy and more “client attrition” than was anticipated.
The GSS business is also generating $552m in annualised costs, State Street says. The division contributed $96m in fee revenue in the first quarter. The bank continues to convert GSS clients to its own systems and expects more than 500 conversions over the next six months.
Northern Trust is “performing an intensive review of the business and operations in order to improve productivity”. It has begun a series of “outsourcing and re-engineering” to improve efficiency and lower costs.
Chairman and chief executive William Osborn says: “The combined impact of the struggling global economy, sharp declines in equity markets, and low interest rates have continued to negatively affect our performance.” He says the company continues to win new business.
As at the end of March, assets under administration totalled $1.59trn which includes managed assets of $365.3bn. The group recently bought Deutsche Bank’s passive asset management business.