State Street Corp. on Wednesday reported a 3.4 percent drop in fourth-quarter revenue and said it lost more than $1 trillion in custody assets to JPMorgan Chase & Co Inc., sending State Street stock tumbling as much as 7.5 percent.
State Street is the world's No. 2 custody bank with $28.8 trillion in assets under custody and administration, behind Bank of New York Mellon Corp. But the figure could shrink by more than 3 percent after JPMorgan said on Wednesday it was chosen by BlackRock Inc. to be custodian for more than $1 trillion in assets being serviced by Boston-based State Street.
"We're disappointed," State Street Chief Executive Officer Jay Hooley told Reuters. "But our relationship with BlackRock is still very global and growth oriented" as it continues to service BlackRock iShares exchange-traded fund assets.
Hooley said asset managers are consolidating the number of custody providers in a move to lower costs. He said BlackRock is an exception, given that it manages more than $5 trillion in assets, the largest amount held by any financial institution in the world.
He said BlackRock wanted to diversify its custody base.
"I view it as a kind of one-time recalibration of their service providers," Hooley said.
State Street has been BlackRock's custodian since 1988. Over the years, the two companies have grown together on a global scale and been "joined at the hip," as Hooley said on a conference call with analysts and investors.
State Street also reported fourth-quarter revenue totaled $2.53 billion, down 3.4 percent from a year earlier. Earnings rose 2 percent to $557 million from $547 million a year ago.
Assets under custody and administration declined 1.4 percent in the quarter from $29.18 billion in the third quarter. It will take about 18 months for the BlackRock assets to be moved to JPMorgan's platform.
For JPMorgan, the deal is more of a feather in its cap than a windfall to its bottom line. JPMorgan's assets under custody, which it pegged at $20.5 trillion at the end of December, were boosted by about 5 percent.
The new business is expected to add tens of millions of dollars in annual revenue, and be included in the company's securities services unit, which last year had about $3.6 billion in revenue. JPMorgan's total reported revenue for the entire company was $95.7 billion in 2016 and net income was $24.7 billion.