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The outsider CEOs
Never before have we seen three new CEOs step up to the helm of the biggest global custodians at the same time, and never have there been three new CEOs all considered as‘ outsiders’ or‘ wildcards’.
Welcome to the helm of the world’ s top global custodians: Charles Scharf of BNY Mellon, Michael O’ Grady of Northern Trust, and from 2019, Ron O’ Hanley of State Street. A recent Wells Fargo research report by Mike Mayo, a well-known Wall Street analyst, describes the investment spending by the new CEOs as a“ wildcard” for the three banks.“ The three new CEOs, all relative outsiders, have an unstated mandate to better monetise their platforms. The greatest long-term upside potential is if one of these firms could lead the industry enough to obtain a FinTech type premium,” the report said. All three have come from either outside of the custody or the banking business as opposed to their predecessors. O’ Grady previously oversaw Northern Trust’ s wealth and asset management businesses, O’ Hanley currently serves as head of State Street’ s global asset management arm, and while Scharf previously served time at JP Morgan, he is best known for his time as CEO of Visa. The fact that these three new CEOs come from backgrounds outside of custody means they will most likely bring a different view to how to monetise the business and generate new revenue flows. At Northern Trust, O’ Grady takes over a steady and stable business which in the past has not been caught up in the scandals that BNY Mellon and State Street- see below- have had to face. It is easy to see that the wealth management business could become an even more central part of the bank’ s global business. Over the past decade, the wealth management business has grown just as fast as the S & P 500, making it one of Northern Trust’ s top asset gatherers. Northern Trust is perhaps in stark contrast to BNY Mellon, which over the past year has given its asset servicing business a complete makeover. With no Brian Shea, the long-time CEO of BNY Mellon’ s Pershing and its investment services unit, steering the business, it is likely Scharf will bring a new focus to technology and payments. At his first investor services day this month, Scharf highlighted that his bank will increase its tech budget by $ 300 million to $ 2.7 billion for the year and aims to provide the“ best operating platform in the business.” Arguably the biggest question mark surrounds State Street’ s O’ Hanley. He originates from global consultancy firm McKinsey, where he founded the investment management practice worldwide. He had since held leadership roles at the asset management business of BNY Mellon, Fidelity, and now State Street Global Advisors. O’ Hanley has the mammoth task of rebuilding State Street’ s culture. While it has taken tremendous steps in promoting ESG investing and diversity within the business and wider capital markets, it has in the past been embroiled in a number of scandals. However, the good news is that State Street is one of the best performing banks out of the three global custodians, having seen its assets under custody increase 15 % over the year to $ 33.1 trillion. Furthermore, State Street’ s“ Project Beacon” looks to more fully evolve the bank to become a digital enterprise that better anticipates and reacts to real-time client needs. The advantage for both State Street and Northern Trust with both of their CEOs coming from the buy-side is that they will bring with them their own experience and perspective on what a custodian bank needs to offer to its clients.“ Customers will value this knowledge
Joe Parsons, Deputy Editor, Global Custodian
of their business – a trait that is always rated highly in custodian evaluations. The CEOs from the buy-side will have a sense of what is essential to retain and attract business. It will be interesting to see how well they can switch to a service provider mentality, as they discover what is actually achievable,” said Dayle Scher, senior analyst for global research firm TABB Group.“ They will need to combine their tech savvy with their empathy for their clients when considering new product lines that add value and revenues, again without sacrificing the quality of the services that are table stakes.” These CEOs need to embrace technology and automation along with a greater focus on big data, digital transformation and cyber security this year as a way to meet client demands. For these three outsiders bringing a fresh new perspective to an otherwise tired business could be the key in propelling the industry forward.
82 Global Custodian Summer 2018