State Street went into the Deutsche deal from a position of strength, according to its president and COO Ron Logue. “We won more business in 2002 than in any other year. All in all, wins exceeded business losses in a ratio of three to one.
“Relative to the competition we are happy, but from an absolute point of view we want to do better.” The Deutsche transaction provides the platform to do that in Europe, he says.
“It is the European franchise that is important because this gives us size in markets that are going to grow dramatically. When you look at the asset composition of the Deutsche book of business as against other comparable custodians in $2 to 4trn range, the others have a high proportion of sub custody business.” Sub-custody is not something that State Street is particularly interested in and is excluded from the deal.
Logue is clearly impressed with the strengths he found at Deutsche, with is strong management and organisation and State Street wants to end up with its 25% market share in Germany. “I think the German Depot bank business is a very big part of this puzzle.”
The upshot, is that there are virtually no plans to change the German business basis. “There is no need to, so it is going to work out very well.” The Depot bank will operate in Eschborn, just outside Frankfurt and State Street’s presence in Munich is to continue. For the rest of the continent and the UK, there will be very little change. “We think the WM Company franchise relating to performance measurement is very strong, so that should be left as it is.”
On the UK fund accounting side, it is likely that Deutsche customers will be transferred to the State Street platform. “We invested considerably in the investment fund platforms, providing new and sophisticated platform capacity.”
In Scotland the intention is to take on the Deutche premises in Edinburgh and continue this and keep State Street’s own building too in Lothian Road. “In Ireland, we will take on Deutsche’s Kilkenny operation for now, so there won’t be any dislocation there.” The two new buildings in Luxembourg have plenty of capacity. “So we don’t have to run around to build more capacity, it is there.”
Outside the US there is a more or les perfect fit, says Logue. “We will convert the US clients to our platforms here, which is where we will obtain our synergies.” This is where the main redundancy impact is likely to be felt, with up to 1,000 staff said to be likely to lose their jobs, but State Street says any figure has yet to be confirmed.
In the US, the conversions are scheduled to be completed in a 12 to 18 month time frame and the same is anticipated for the UK. Some clients will be converted before the closing of deal in a few months’ time. “The key thing here is speed of conversion and lack of customer disruption,” says Logue. “That is one of the secrets to retention.”
The deal amount of $1.25bn to $1.5bn payable to Deutsche is dependent on what proportion of clients migrate to State Street. “We see the need to sell every customer the benefits of State Street. We do not assume the business is just going to come to us, and we have to sell our capabilities to each customer set.”
He acknowledges that the bank is bound to lose some Deutsche clients. Customers will give State Street the benefit of the doubt, he maintains.
So the competition will have to be satisfied with wining small skirmishes, according to Logue. “As far as I am concerned the war is over and we have already won it,” he says. “Some 25% of the assets are those of Deutsche Asset Management (DeAM) with whom we have a 10-year contract, and no customer can take the Depot bank business, and no other custodian has a depot bank. But, inevitably we will lose some potential clients,” he says.
“My perception is that the Deutsche book of business was one of the few with such high customer content as opposed to sub-custody content of the custodians.” He thought it would take other providers quite some time to catch up organically, and in a number of places like Germany, this will be almost impossible. “Ours was the only way to do it there.”

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