In 2007, Boston-based State Street Corp. paid $564 million in cash for Currenex, a London-based online foreign exchange platform, hoping to get in on the enormous growth in the electronic forex marketplace, which had become increasingly dominated by hedge funds. “That was a great opportunity for us not only to pick up a synergistic competitor but also to obtain some real technology that we would have otherwise had to build out on our own,” says Joseph Antonellis, head of investor services in North America for State Street.
It turned out to be a particularly well-timed investment. Last year foreign exchange trading contributed heavily to State Street’s bottom line. The firm’s total trading-services revenue, of which forex is a major component (a recent Euromoney forex poll ranked State Street No. 15 on its list of top global banks in the category), approached $1.5 billion. Although State Street’s first-quarter forex figures reflected the sluggishness of the overall markets (down 28 percent from the same period last year), higher volatility offset reduced volume, and the company’s executives say that they see greater near-term growth.
Despite some down days, State Street’s shares have held up well overall this year. Its stock price dove nearly 60 percent in a single day in January, to less than $15 a share, over fears that the company would have to raise additional capital. In May, however, it passed the Treasury Department’s stress test with style, with the highest tier-1 capital ratio (over 15 percent). By early June, State Street’s shares were once again trading near $50.
The company expects a good part of its future to unfold overseas. State Street calculates its non-U.S.-based revenue at about 40 percent of the total, and CEO Ronald Logue has said that fully half of revenue could eventually come from nondomestic sources. Additionally, a recent State Street study found that nearly 90 percent of institutional investors expected to either increase or maintain hedge-fund allocations in the coming year -- and the hedge fund industry, of course, is becoming increasingly global, a development that presents special challenges. Says Antonellis: “We see that driving the business dramatically.”
