State Street is placing increased emphasis on plans for digital transformation, focusing on reducing its run-the-bank technology spend and transferring some funds towards its investment and strategic capabilities instead, Brian Franz, global CIO said during Morgan Stanley’s U.S. Financials, Payments & CRE Conference.
The bank’s technology spend is expected to stay level this year at the 2021 level of around $2.4 billion, with approximately 55% of that figure going toward its run-the-bank expenses, according to company metrics shared during the conference.
Franz highlighted AI and automation as technologies that remained “front and center” for the financial service’s digital transformation efforts and also spoke to the institution’s game plan for tapping cloud technology.
The company has worked to transfer the bulk of its data management and analytics investment platform Alpha over to a public cloud-based infrastructure — but “not everything” should be moved over to such an environment, according to Franz.
The bank is instead pursuing a hybrid strategy, looking to continue utilizing both traditional mainframes as well as both public and private cloud solutions depending on need, Franz said.
“We think of … what we’re processing as workload,” Franz said. “In a three- to five-year timeframe we’ll have all of our workloads in their target environments.”
The bank is also working to commercialize blockchain and tokenization applications, Franz said during a presentation at the conference, looking to the technology to support digital custody for the bank’s clients.
Navigating market uncertainty
State Street’s focus on digital transformation comes as the financial services firm — along with others in the financial sector — look to navigate a macro-economic environment that is “constantly changing,” State Street CFO and Vice Chairman Eric Aboaf said during the conference.
Aboaf has served as the company’s CFO since December 2016, and previously served as CFO for Citizens Financial Group. He also held treasurer and various CFO roles at Citigroup, according to LinkedIn.
Aboaf pointed to the volatility of equity markets, with average global markets declining 7% to 8% quarter-on-quarter as opposed to the relatively flat movement seen in mid-April following the financial service’s first quarter earnings.
State Street also expects to see its fee revenue decline by between 6% to 7% quarter on quarter, compared to the 2% to 3% previously signaled in April, a change due largely to the market’s decline relative to the first quarter, Aboaf said.
Estimates for the financial service’s second quarter revenue currently stand at approximately $3.06 billion, according to Seeking Alpha.
State Street dismisses Credit Suisse rumor
Aboaf also joined other State Street executives in dismissing reports of a potential acquisition by State Street of Swiss bank Credit Suisse, rejecting it as a “random market rumor” and stating articles about the alleged acquisition fell “somewhere between foolish and fact-less.”
Speculations of the buy were originally reported by Swiss blog Inside Paradeplatz on June 8, and prompted a rally of Credit Suisse’s stock on the day, according to a report by Financial News London.
Shares dipped Friday following denials of the rumor from both State Street and Credit Suisse executives, with Credit Suisse Group CEO Thomas Gottstein noting reports of the potential deal were “really stupid,” according to a June 10 Barron’s report.
Rumors and acquisition denials come as Credit Suisse signaled a weak upcoming second quarter in a statement released June 8. The bank cited the war in Ukraine, “significant tightening” by central banks due to inflation, and the lingering effects of the pandemic as the top reasons for what will be the bank’s third consecutive quarterly loss.