State Street has not had a good week.
However much lipstick you put on a pig, it’s still a pig. State Street will be very relieved to see the back of this particular pig, preferably as a nice plate of bacon. Q3 earnings were modest at best, rescued by net interest income, which rose 36pct YoY. The effect of BlackRock’s withdrawal of a portion of its ETF business is starting to bite, contributing to an 18pct decline in AuC/A. On the earnings call, State Street described the deal to acquire the investor services business of BBH as “increasingly uncertain”.
Then, just to cap off the week, Nadine Chakar, the head of State Street’s digital business unit, resigned. Chakar was always a strange choice to head up the digital unit, having no particular experience in that field. Having spent many years at both Mellon and BNY Mellon – where she was closely involved in the uncomfortable onboarding of the Bridgewater business – Chakar had moved to Manulife Investment Management, where she was global head of operations & data. In 2019 she was drafted in by State Street to run its global markets business – again, with no discernible markets or trading expertise on her resumé. Within three years, she had been appointed to run the new digital business.
The business got off to a flying start. It struck deals with a number of fintechs in the sector, including Securrency, Lukka and Copper.co, whilst it hired a broad slate of senior managers to guide it through the building phase. Then…nothing. Crickets. It was outsmarted and outmanoeuvred by BNY Mellon, which announced the launch of its digital asset custody business on October 11.
State Street has made a number of strategic and tactical errors with its digital business. Unlike BNY Mellon, which put digital asset custody within the overall control of Caroline Butler, the CEO of all custody services, State Street chose to establish it as a standalone business, divorced from the core operational infrastructure. Many of the managers it has hired have little or no experience in the investor services space – and, without that integration, they are adrift. And, whilst it has talked a lot about its focus on tokenisation, it has been beaten to the punch by a string of its competitors, many of which have long since moved from PoCs to live transactions.
All this can, and will, be fixed. Lou Maiuri, the corporation’s president, has already moved to install new senior managers overseeing both product and client at the highest level. Digital needs to be integrated into the mainstream, and management must now deliver, rather than producing endless decks of blueprints and flowcharts.
BNY Mellon has demonstrated how it should be done. In Roman Regelman, brought in originally to run the enterprise-wide digital business, the bank found someone unique: a management consultant who actually understood how to set up and run a business. Other banks – including SGSS, BNP Paribas, HSBC, Northern Trust, and U.S. Bank – have also been much smarter than State Street about their approach to digital.
Tough as it may be to say so, Chakar’s departure is an undisguised blessing. State Street now has the chance to rethink and reset its digital strategy. Its fintech partners are good enough to help it chart a new course, which it urgently needs to do. For as long as anyone can remember, State Street has led the market in numerous ways – but digital is not one of them. It’s too important to get it wrong again.