State Street CEO Jay Hooley spoke to a receptive audience when he talked about his company’s international ambitions at Boston’s posh InterContinental hotel in March.
Hooley discussed State Street’s long-public goal of reaching the point where at least half of its revenue comes from overseas clients. A global expansion, Hooley pledged, would strengthen the financial services firm’s position here in its home city.
The dark-suited executives who packed the room probably had no reason to doubt Hooley’s promise. State Street, after all, is a survivor. In recent years, State Street emerged as the biggest publicly traded financial company left in Boston. In fact, it’s the biggest public company, in any industry, with a headquarters in the city.
In the past two years, State Street expanded in China, acquired custody and asset management businesses in Europe and looked at opportunities in Latin America. State Street’s total employment levels in Boston and Quincy haven’t risen by much over the same time. But they haven’t dropped by much, either.
Dan Armstrong of Braintree tells me that back around the time of Hooley’s speech to the Greater Boston Chamber of Commerce, he was learning about a different aspect of State Street’s growing global reach, one that the company doesn’t seem to talk about publicly. Armstrong, who says he left State Street this month after a 14-year tenure, says he first learned of State Street’s relationship with Syntel in the spring. The Michigan company specializes in providing back-office support for its customers, primarily from its campuses in India.
State Street and Syntel have run a joint venture in India for several years. State Street has also been Syntel’s second-biggest client, after American Express, and was responsible for $87 million of Syntel’s revenue last year, according to documents filed with the Securities and Exchange Commission.
Armstrong, who was a fund administration manager, says he soon learned firsthand about the State Street-Syntel relationship. He says he was told in September that he would be training about a dozen Syntel workers from India to handle regulatory-compliance jobs that he says Americans have been doing.
As Armstrong tells it, he started to feel guilty that he was teaching people from another country to replace colleagues here. By the time his trainees were returning to India in October, his guilty conscience prompted him to act, he says. He fired off missives to media outlets in the Boston area (including this paper) complaining about State Street’s outsourcing arrangement with Syntel. But no one wrote a story.
In November, Armstrong took a different approach. He says he wrote to members of the U.S. House’s financial services committee to make them aware of the outsourcing. He didn’t hear back.
Finally, Armstrong just left the company. He says he owns rental property and has a part-time security job to help pay the bills. He wasn’t happy at State Street anymore, and he claims that he was about to be fired and wanted to leave on his own terms instead.
Because it’s a personnel matter, State Street won’t talk about Armstrong’s situation, other than to confirm that Armstrong no longer works there. That’s not surprising.
But it is somewhat surprising that State Street won’t really talk about Syntel, either. I emailed a list of questions regarding the relationship with Syntel on Thursday. The response? A two-sentence statement, laden with corporate jargon. State Street says it is continuing to “leverage our global footprint” to effectively deploy its staff across “time zones and core capabilities” and to “streamline processes and maximize our technology.” These initiatives, State Street says, are aimed at increasing operational efficiency and positioning the company for faster growth.
Syntel has even less to say. A spokesman for the company simply declined to comment when I asked him about Syntel’s relationship with State Street.
What is clear is that State Street has been using Syntel since before Hooley became CEO in 2010 — and certainly before Hooley launched a four-year efficiency initiative a year ago. State Street was a source of more than $80 million in annual revenues for Syntel in 2008 and in 2009. That’s big money for Syntel — one-fifth of its annual revenue back then. But it’s pocket change for a behemoth like State Street, whose annual expenses totaled more than $6 billion last year.
Armstrong says he believes there are hundreds of people in India doing State Street jobs once held by Americans, and he says there probably will be hundreds more next year. Syntel’s SEC filings don’t provide specific job numbers. But they do say that Syntel’s “knowledge process outsourcing” (Syntel’s words, not mine) includes a number of tasks that State Street handles for its clients. Those include fund accounting, trade processing and hedge fund administration.
State Street’s passage to India doesn’t seem to be draining jobs in a major way out of the Boston area, at least not yet. At the time Hooley unveiled this big four-year efficiency initiative a year ago, the company said it employed about 8,100 people in Boston and 3,700 in Quincy and Milton. The numbers are pretty much the same today – roughly 8,000 in Boston and 3,800 in Quincy.
Meanwhile, the company’s global work force has grown, though at a modest pace. There were nearly 29,000 employees a year ago. As of last count, that number has risen to 29,685. That growth has occurred despite the fact the company has unveiled two major rounds of job cuts in the past year – there were 1,400 cuts announced a year ago, and another 850 over the summer.
In October, State Street found itself under fire from an investor who called upon the company to improve its efficiency and start showing some results from this four-year plan. But Tom Lewandowski, an analyst with Edward Jones in St. Louis, says expense issues have regularly dogged the company. Lewandowski, who currently recommends State Street stock as a good long-term investment, says Hooley and his team will need to prove to investors that efforts to make the company more efficient will pay off. He says outsourcing will play a role in this, but he expects that investments and improvements in technology will be the most important factor.
In general, State Street and its rivals are in a low-revenue-growth environment right now, Lewandowski says. That puts more pressure on the financial firms to seek new sources of cost savings, to keep that earnings growth moving upward. He says cost-shifting to less-expensive countries – China, India and Poland, to name a few – is fairly normal in the industry today.
Armstrong says he suspects his story wasn’t picked up because no one wanted to mess with a local corporate icon and its potential advertising dollars. I think there could have been another factor at play, one that’s far more depressing. Shifting jobs overseas has become so commonplace in corporate America that we’ve come to expect it.
Jon Chesto, The Patriot Ledger’s business editor, may be reached at jchesto@ledger.com or at massmarketblog.com.