As part of its efforts to improve operating efficiency, State Street STT began the layoff of 15% of its senior managers. The job cuts will affect senior managers, executive vice president and senior vice president positions. This was first reported by Bloomberg.
In December 2018, at an investors conference, Ronald O’Hanley, the company’s newly appointed CEO, had commented that State Street will continue with its cost saving initiatives. Per the presentation, the company will be shrinking its top management ranks by 15% with an aim to lower structural expenses (including compensation, benefit, occupancy, and other costs) 2-3% annually.
Further, State Street intends to increase the use of automation and streamline organizational structure to reduce costs. At the conference, O’Hanley said, “When you do that, one, you’re simplifying the way business gets done at State Street. But two, you just don’t need as many top-end senior managers to get the work done.”
The company spokesman Marc Hazelton declined to reveal the number of senior managers who are being laid off.
Also, State Street had announced a multi-year plan — State Street Beacon — to further digitize its operations and create cost efficiencies in 2016. The plan aims to generate nearly $550 million in annualized pre-tax savings and improve operating basis pre-tax profit margin to 33% by early 2019, significantly ahead of scheduled target of 2020-end.
Notably, the company already generated $505 million in pre-tax expense savings as of Sep 30, 2018. State Street now targets to achieve $200 million in annual pre-tax net run rate expense savings in 2018 (up from prior target of $150 million).
Therefore, the above-mentioned layoffs are a step in the right direction for State Street. Of late, the company has been struggling to further improve profitability amid tough operating backdrop.
This is also reflected in the investors’ apathy toward the stock. Shares of State Street lost 35.4% in 2018 compared with the industry’s decline of 18.5%.
Currently, State Street carries a Zacks Rank #3 (Hold).
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