Hooley Must Navigate State Street Lawsuits, Balance Sheet Risk
Oct. 23 (Bloomberg) -- Joseph “Jay” Hooley, the 23-yearState Street Corp. veteran named yesterday to succeed ChiefExecutive Officer Ronald Logue, will have to clean up $3 billionin unrealized losses while steering the largest money managerfor institutions through a series of lawsuits.
“Jay Hooley certainly knows the business well,” GerardCassidy, an analyst with RBC Capital Markets in Portland, Maine,said in an interview. “The main challenge for him is tonavigate” the problems created by the credit crisis.
State Street this year cut its quarterly dividend, halvedbonuses and raised $2.5 billion to repay government aid and propup capital depleted by mark-to-market losses in proprietarytrading. The company faces a possible lawsuit from the U.S.Securities and Exchange Commission over bond funds that lostmoney on mortgage-backed securities, and was sued this week for$200 million by California for allegedly defrauding two statepension funds through unfair fees.
Logue, 64, led State Street through the credit-marketcrisis that began with the collapse of the subprime-mortgagemarket in 2007 and resulted in losses in the company’sinvestment portfolio and commercial paper programs. The crisisculminated in a record $3.3 billion loss for State Street in thesecond quarter as the company wrote down the value of debtinvestments.
Logue, who presided over a 4 percent drop in State Street’sshare price since he took over as CEO in June 2004, will stay onas non-executive chairman of the Boston-based company’s board ofdirectors until Jan. 1, 2011, State Street said yesterday.Hooley, 52, was elected to the board of directors effectiveimmediately.
Unrealized Losses
State Street on Oct. 20 lowered its estimates for 2009operating revenue and earnings, causing shares to decline themost in five months. Third-quarter earnings rose 8.1 percent to$516 million after it cut jobs and the stock-market reboundbolstered fees. Earnings last year were hurt by a $200 millionprovision the Boston-based made to cover potential losses fromloans to bankrupt Lehman Brothers Holdings Inc.
Unrealized losses in State Street’s investment portfoliodecreased to $2.99 billion, after taxes, from $4.75 billion atthe end of the second quarter, and from $6.32 billion as of Dec.31. Unrealized losses represent what State Street would lose ifit were forced to sell the securities in its investmentportfolio at current market prices.
Thomas McCrohan, an analyst at Janney Montgomery Scott LLCin Philadelphia, said in an interview he expects the company maywrite down more unrealized losses on its balance sheet and buildup litigation reserves at the end of this quarter.
Rising Through Ranks
“Typically, this is an opportunity for a company to cleanup its balance sheet and give the incoming CEO a clean slate,”McCrohan said.
Hooley, a Massachusetts native and graduate of BostonCollege, joined State Street in 1986. He has served as vicechairman since 2006 and chief operating officer since 2008. Heis responsible for the company’s asset-servicing businessesworldwide.
Hooley ran National Financial Data Services, a jointventure between State Street and Kansas City-based DST SystemsInc., from 1988 to 2000. He shifted in 2000 to managing theparent company’s global-investment-servicing division.
“Ron and Jay have worked together for many years, so it’sa non-event from a business-continuance point of view,” saidJohn Hailer, CEO of Natixis Global Asset Management LP, theBoston-based unit of French bank Natixis, and a customer ofState Street’s.
State Street provides record-keeping and transaction-processing services for funds managed by Natixis.
Talking Hockey
“Jay is a terrific guy and will be a terrific CEO,”Hailer said. “He’s a guy who can talk about the highest levelfinance, and who can also sit back and talk about the BostonBruins just as easily,” he said, referring to the city’sprofessional hockey team.
Logue, who has bachelor’s and master’s degrees from BostonCollege, joined State Street in 1990 as senior vice presidentand head of investment service for U.S. mutual funds. He wasnamed chief operating officer in 2000 and president a yearlater.
Logue oversaw the $4.2 billion purchase of InvestorsFinancial Services Corp. in 2007, the company’s largestacquisition. During his tenure, State Street received $2 billionunder the government’s Troubled Asset Relief Program in November2008. In June, it became the first of the program’s originalrecipients to repay the bailout money in full.
Logue also expanded the company’s proprietary investmentportfolio and its commercial paper programs, which were hurt bythe credit crisis starting in 2008.
‘Too Large’
“I think it’s fair to say the commercial paper programswere too large,” Kevin Conn, an equity analyst at MassachusettsFinancial Services Co. who has covered State Street for morethan a decade, said in an interview. “But it wouldn’t be fairto say there was a risk-taking culture at State Street.”
State Street is the third-largest custody bank, overseeing$13.3 trillion. Assets under custody grew 46 percent under Logueas of Sept. 30. The amount of money the company invests onbehalf of clients rose 45 percent to $1.74 trillion.
Custody banks keep records, track performance and lendsecurities to institutional investors including mutual funds,pension funds and hedge funds. The company’s money-managementunit, State Street Global Advisors, operates mutual funds andinvestment accounts for institutions and wealthy individuals.
To contact the reporters on this story:Christopher Condon in Boston at ccondon4@bloomberg.net;Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.
Last Updated: October 23, 2009 00:01 EDTSource: Bloomberg
« Back to Business News
Related News
-
BB&T Takes Over Failing Colonial BancGroup Oct 22, 2009 @ 10:38 PM
Wall Street’s biggest banks may be roaring back to life, but trouble still lurks in corners of the financial industry that remain plagued by a legacy of bad investments.
-
Treasuries, Dollar Rise While Stocks, Commodities Prices Slump Oct 22, 2009 @ 10:38 PM
Dec. 7 (Bloomberg) -- Treasuries advanced, the dollargained versus the euro while stocks, gold and oil declined afterFederal Reserve Chairman Ben S. Bernanke said the U.S. economyfaces “significant headwinds” and inflation “could move lower.”
-
Vivendi, GE Agree on NBC Price, Paving Way for Deal Oct 22, 2009 @ 10:38 PM
Dec. 1 (Bloomberg) -- General Electric Co. and Vivendi SAagreed on a $5.8 billion valuation for the Frenchtelecommunications company’s 20 percent stake in NBC Universal,according to two people with knowledge of the discussions.
-
Vivendi, GE Agree on Price for NBC Stake, Clearing Path to Deal Oct 22, 2009 @ 10:38 PM
Dec. 1 (Bloomberg) -- General Electric Co. and Vivendi SAagreed on a $5.8 billion valuation for the Frenchtelecommunications company’s 20 percent stake in NBC Universal,according to two people with knowledge of the discussions.
-
Dubai crisis jolts markets, but early fears ease Oct 22, 2009 @ 10:38 PM
NEW YORK — Dubai's debt crisis rattled world financial markets Friday, raising concerns that some banks could further tighten lending and stall the global economic recovery.
