Investors are growing impatient with the slow pace of the turnaround at State Street Bank. The bank’s stock price has barely budged in three years, but its senior executives have reaped princely sums – just the sort of thing to set investors’ teeth grinding. The bank’s poor performance is compounded by poor communication.
State Street is one of the giants in asset management and custody, businesses that are seen as a more stable source of growth than traditional lending. Trian, a well known activist investment firm led by Nelson Peltz, outlined a plan a year ago to improve the bank’s profitability through cost-cutting, restructuring and capital returns.
A year later, they’re growing more frustrated at the bank’s lack of progress and are calling for a change in leadership. Their frustration was so strong that they spoke to the Financial Times on the eve of the bank’s third-quarter earnings announcement. That’s a highly unusual move.
The bank’s poor communication has added to investor frustrations. It first projected it would have a lower-than-expected capital ratio under new regulatory rules, then revised the figure upward two months later. A surprise acquisition earlier this was also poorly communicated. As the Financial Times notes:
“A Trian criticism, that the group overpays for acquisitions was not helped when State Street announced the $550m purchase of Goldman Sachs’ hedge fund administration business in July at their second-quarter earnings. ‘They overpaid and communicated terribly, even though the deal does make sense strategically,’ says one large investor.” (Emphasis added.)
Good communication isn’t a substitute for a good business strategy or adept management. But it helps when the pressure is on – and Trian has a track record of doing precisely that.