Bloomberg News

State Street `Living Will' Says Custody Should Stay Whole

October 04, 2012

State Street Corp. (STT:US), responding to a new rule requiring the largest banks to outline how they could be broken up in a failure, said its global custody business should be kept whole in an emergency sale to minimize disruptions to clients.

“Under the preferred resolution strategy, State Street’s global custody business would be maintained as an integrated business in a sale transaction, in order to minimize disruption to clients and the U.S. and global financial systems,” the third-largest custody bank said in the summary of a resolution plan posted on the website of the U.S. Federal Reserve. Material entities that are “sufficiently self-sustaining” wouldn’t need to be placed into resolution proceedings.

Bank of New York Mellon Corp. (BK:US), the biggest custody bank, said the parent company would seek protection under Chapter 11 of the U.S. bankruptcy code to facilitate the orderly sale or unwinding of material non-bank units, according to the summary of its plan. The main bank subsidiary, New York state-chartered bank The Bank of New York Mellon, would enter into receivership by the Federal Deposit Insurance Corporation.

U.S. regulators, seeking to prevent a repeat of taxpayer- funded bailouts of the financial system, have required the world’s largest banks to file plans for an orderly shutdown in the event of an emergency. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Goldman Sachs Group Inc. were among nine banks that filed their so-called living wills in July.

The FDIC and Federal Reserve were too late in telling State Street and BNY Mellon that they needed to be among the original banks to submit living wills, leaving them unable to do so with the first nine, said David Barr, an FDIC spokesman. The two custody banks were given until Oct. 1.

‘Sale Strategies’

“The determination that they needed to submit the plans was not made with sufficient time to meet the July 1 deadline,” Barr said.

State Street, which is based in Boston, said a sale could be executed rapidly. Should a sale fail, the company would be wound down under the U.S. bankruptcy code, the Federal Deposit Insurance Act and other resolution regimes, according to the summary.

The plan “contemplates sale strategies for each of State Street’s Core Business Lines, which State Street believes would be attractive acquisition targets for a single or multiple third-party buyers, which could include global, national or regional financial institutions, private equity or other buyers of financial assets,” according to State Street’s filing.

BNY Mellon, headquartered in New York, said potential buyers for its subsidiaries include “a range of sophisticated and diverse financial services firms.”

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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Companies Mentioned

  • STT
    (State Street Corp)
    • $74.62 USD
    • 0.32
    • 0.43%
  • BK
    (Bank of New York Mellon Corp/The)
    • $40.18 USD
    • 0.26
    • 0.65%
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