Marking the passing of the architect of the State Street we know today.
1975 was an important year. The Vietnam War ended. Microsoft was founded. Margaret Thatcher became leader of the UK’s Conservative Party. And Queen released “Bohemian Rhapsody”.
But, for our industry, 1975 was important for a different reason. That year, the board of State Street hired Bill Edgerly as president and CEO. Edgerly was already a board member, so he was well aware of the challenge. State Street’s stock was trading at 40pct of book value, making it a prime takeover target. It was also a hodge-podge of businesses that didn’t really hang together strategically.
Edgerly set about changing this. He had his eye on demographics, determining that the long-term prosperity of the firm lay not in branch banking, mortgages and credit cards, but in asset management and asset servicing (the passing in the U.S. of the Employee Retirement Income Security Act of 1974 was a definite spur). Edgerly realized that the bank could leverage its expertise in mutual fund processing – it had been appointed custodian of the first U.S. mutual fund in 1924, the Massachusetts Investors Trust (now MFS Investment Management) – and apply that to endowments and pension funds. He also saw an opportunity to take the bank’s personal trust business and translate it into an institutional money management operation.
The culmination of his thinking was the so-called “Bold Strategy”, which set out his vision for a new State Street. As he told me in 2004: “Our challenge was to move from being a New England commercial bank to being a global financial asset services provider”. To make this transition, Edgerly oversaw the development of a multicurrency accounting and processing platform, the introduction of 24-hour operations, expansion of the Quincy operations hub, and the expansion of its international footprint (although Edgerly later bemoaned the slowness of the board in appreciating the need to invest overseas).
Edgerly was also amongst the first bank CEOs to understand the importance of technology and the increasing role of the custodian as an information provider, rather than simply a processor. He allocated 25pct of the company’s operating costs to IT—almost twice the average of peers at the time. As well as being ahead of his time in so many ways, he was also lucky: during the boom years of the eighties, State Street was in the zone. “The opportunities were far greater than we expected,” he recalled. (One of the unsung heroes of this transformation was Ed Allinson who, in two separate stints at the bank, oversaw much of the development of the mutual fund servicing business and the launch of its master trust services for pension plans. By deploying new technologies which reduced the cost of custody and servicing of mutual funds, Allinson was a major contributor to the shape of the modern mutual fund industry.)
As the inserv business grew both domestically and overseas, Edgerly was aware that he needed to upgrade the senior management team. In 1990 he hired Jacques-Philippe Marson from Cedel (now Clearstream) and in 1991 added Albert Petersen. But his most important decision was identifying his replacement. The president and COO was Peter Madden and, under normal circumstances, he would have been the natural successor. But Edgerly knew that State Street needed a different kind of leader: someone who was not intimidated by the technology challenges and who understood the opportunities offered by being an information provider.
Edgerly knew just the man. Marshall N. Carter, then of Chase, was frustrated by that bank’s lack of vision about the potential of the information business. State Street seemed to be the logical home for him, as it proved to be. Joining in 1991, he took the reins from Edgerly in 1992. The rest, as they say, is history. Carter finished what Edgerly had begun, selling its branches to Citizens Bank, whilst steering both the asset servicing and asset management businesses to global leadership positions. It was an inspired hiring, of which Edgerly was rightly proud.
He was also proud of hitting a target: when the Bold Strategy was written, part of it consisted of a forecast of sales growth for 1992, the bank’s two-hundredth anniversary and Edgerly’s last year. It proved to be spot on.
Few people, either inside or beyond State Street, are fully aware of the impact that Edgerly – and Carter – had, not just on the bank, but on the broader industry. True, both Chase and BBH were early adopters, recognizing that custody was going to be a significant growth opportunity following ERISA. But none, apart from State Street, fully grasped that the business was not about processing, but about information – and, beyond that, client empowerment. None underwent the transformation that Edgerly initiated, and Carter completed. Yes, visionary is an overused word – but, in the case of Edgerly, and Carter, it is entirely justified. William S. Edgerly, may you rest in peace.