Tag Archives: State Street Bank

Bankers gone wild

Why staid, mature male bankers should resist the urge to put on lipstick and high heels. The decline of State Street.

For much of its two centuries, State Street Corp. has been a stodgy Boston institution. It was content to act as custodian for investment firms’ securities and to take care of their mundane back-office chores.

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But then it decided to get sexy. And that is when all the trouble started.

Far more than custodian-bank peers like Bank of New York Mellon Corp. and Northern Trust Corp., State Street dabbled in exotic fare that was the terrain of sophisticated Wall Street operators.

It got into conduits, which are instruments that buy such things as asset-backed and mortgage-backed securities, using short-term borrowings. It shifted its investment portfolio from predominantly government bonds into mortgage-backed securities, which rode the housing boom. Then last year, the housing market fell apart and ensnared the financial world — and State Street — in a credit crunch.

Of course, you can’t rack up huge fees if you’re just a dowdy old lender and ego-gratification must be found somewhere else, so the urge to play with the big boys is understandable.

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State Street Corpse?

State Street Corp announced today that more layoffs were coming, all within this quarter. The bank fired 1,800 mid-to-upper-level managers (the type of folks who could afford houses in Greenwich) last December, but that was before it admitted today that it was sitting on $9 billion in worthless paper. Question: since much of this worthless junk was tied to Lehman, how long did State Street know that it had this little problem, and what finally forced it to fess up today?

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