Hooley to end on a high as $1 trillion Vanguard wins push State Street back to the top

State Street announced assets under custody of $33.8 trillion, up 9% year-on-year and overtaking BNY Mellon for the first time in three years.

By Joe Parsons

“It’s not about how you hit. It’s about how hard you can get hit and keep moving forward.” No, unfortunately this was not a quote from our headliner in this story, State Street CEO Jay Hooley, but the infamous words of Rocky Balboa which ring true with any comeback.

When you look at where State Street was at the beginning of last year, the announcement that it had lost $1 trillion of BlackRock’s assets to JP Morgan was the big hit. So much so, that State Street was in danger of being replaced by JP Morgan as the second largest custodian by assets.

After receiving this trillion-dollar setback, you can imagine Hooley, State Street’s long-serving chairman and CEO, giving Balboa-esque speech – though with more linguistic capabilities – to rally the troops and bounce back.

Now 18 months later, they have just done that. Last week, State Street announced assets under custody of $33.8 trillion, up 9% year-on-year and overtaking BNY Mellon for the first time in three years to earn the title of world’s largest global custody bank.

State Street said it achieved asset servicing mandates totalling nearly $1.5 trillion, of which $105 billion was newly announced in the second quarter.

In April, Hooley hinted that a “global player” operating in many different geographies had decided to consolidate their relationships with State Street, but did not disclose who. However, it is no longer a secret and the client was in fact Vanguard, the world’s second largest asset manager.

Global Custodian understands that over the course of this year, Vanguard had transitioned over $1 trillion of mutual fund and exchange traded fund (ETF) assets to State Street.

Most recently in June, Vanguard moved a portfolio of 16 mutual funds and a variable annuity portfolio from Brown Brothers Harriman to State Street. This portfolio included the $414.7 billion Vanguard 500 Fund, its oldest index fund, a $110.3 billion Developed Markets Index Fund, and the $106.1 billion Totalled International Bond Fund.

In total, State Street has won custody of more than $1.3 trillion of Vanguards assets over the course of 2018, and the Boston-based bank plans to install a further $300 billion of other asset wins throughout the year.

Speaking on State Street’s second quarter earnings call, Eric Aboaf, chief financial officer, said: “We’re excited to have them [Vanguard]. We think they really were impressed with the automation and technology and so forth, but the kind of functionality we’ve brought to the custody [business] over the last few years.”

Hooley added on the call that the mandate wins demonstrates State Street’s ability to provide new tools and services is increasingly becoming a differentiator between competitors.

“Our ability to deliver new tools and functionality is proving to be a meaningful factor in point of differentiation and client decisions as demonstrated by the Vanguard win,” said Hooley on the call.

Nevertheless, State Street is halfway through the process of migrating the BlackRock assets from its portfolio to JP Morgan. Aboaf said on the call the effect of the transition resulted in a loss of $10 million in asset servicing revenues over the quarter.

Yet for Hooley, he will end his 30-year career at State Street on a high. Since 2010 when Hooley became CEO, he has taken State Street closer and closer to overtaking BNY Mellon, and now he can retire knowing he has fulfilled his goal.

It will be up to Ron O’Hanley, the former president and CEO of its buy-side arm State Street Global Advisors (SSGA), to replicate his success and carry on the momentum it has gained with these new asset servicing wins.