State Street has begun the process of cutting the costs of the Deutsche GSS acquisition. The Boston-based global custodian bank yesterday unveiled an operations integration plan, saying that the former Deutsche GSS operations centres in Jersey City, New Jersey, and Nashville, Tennessee, will be closed by the third quarter of 2004 and their work transferred to State Street’s US servicing platform. US client service and client management will move to New York, consolidating operations in new premises in lower Manhattan.
State Street has set itself ambitious cost-cutting targets. The bank says it expects to generate $125-150 million in pre-tax cost savings in 2003 through the integration plan, which is expected to take between twelve and eighteen months to complete. The restructuring costs associated with the Deutsche acquisition in 2003 are expected to amount to $90-$110 million on a pretax basis, approximately half of which will be recorded in the first quarter and the balance over the last three quarters of the year.
In Europe, where there is on the whole less overlap between the State Street and Deutsche GSS operations, Edinburgh looked vulnerable: both Deutsche and State Street (via the old Bank of Scotland fund administration business) have operations there. But State Street says Edinburgh will “continue to be a major financial center for State Street focused on fund administration, performance measurement and securities operations.” State Street has also designated Edinburgh as the site of the company’s European continuous back-up center for securities operations.
In Dublin, where Deutsche was also present in force, State Street is promising to establish “a significant financial center that responds to client demand for a broad array of investment fund services.” London will remain the primary investment management, investment servicing and securities lending center for State Street in Europe.
In Germany, where State Street inherits the chunk of the Eschborn securities processing centre which housed the Deutsche Depotbank operation, the American bank says it will “build on the leading position of the acquired businesses in Germany to expand its market share and leverage the industry-leading Depotbank services business.”
“Our comprehensive global integration plan will expand State Street’s scope and scale as the premier partner serving the needs of sophisticated global investors, particularly in the fast-growing European market,” says Ronald E. Logue, president and chief operating officer of State Street Corporation. “We will unlock the value of our combined investment services businesses as quickly as possible to deliver the strategic benefits of the acquisition to our clients around the world. We will enhance our market-leading client service and achieve our cost synergy targets, creating value for our stockholders, while continuing to provide clients the highest quality service.”
So the main victims of the post-Deutsche cost-cutting are in the United States. State Street says both the Jersey City and Nashville sites will close in the third quarter of 2004, and client service and client management will move to new premises in lower Manhattan. The company expects to reduce its overall workforce, primarily in the U.S., over a 12-18 month period beginning in June 2003, by approximately 1,000 employees. “The scope and scale of the combined operations in the U.S. will provide significant benefits to clients, including additional resources, and enhanced efficiencies in service and product delivery,” says State Street.
In the Asia Pacific region, the Deutsche processing “hub” in Singapore will become the site of “a significant State Street operations center for Southeast Asia, enhancing State Street’s ability to leverage the skills and experience of Deutsche Bank’s presence in the region.”