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All State Street employees worldwide access the data center in Quincy, which is open 24 hours a day, seven days a week. Sheila Morrison gives technical support to users from the help desk. (Globe Staff Photo / Pat Greenhouse)

Market's shift spurs strategy revisions

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or State Street Corp. (STT), 2002 was a year when the reflection in the mirror suddenly looked unfamiliar.

After a decade of seemingly effortless growth, the Boston financial services company ran into a wall.

The bear market had ravaged the mutual funds and pension fund clients that hire State Street to keep records and account for the stocks and bonds in their portfolios. After 24 straight years of double-digit earnings gains for the company, the streak would end with a modest 6 percent earnings-per-share increase for ongoing operations in 2002. And a long period of expansion and vigorous hiring drew to a close; for the first time in memory, State Street announced layoffs, letting go 575 employees as part of a broad cost-cutting effort.

State Street's chief executive, David Spina, has seen three difficult years at the helm, charged with steering the company through the worst bear market since the 1970s. He has revised the company's goal for the decade to aim for 12.5 percent annual revenue growth, on average -- a number he said State Street would not hit every year. In 2002, State Street's total revenues rose 14.9 percent, but after adjusting for the sale of the corporate trust business and other items, operating revenues were up less than 1 percent.

State Street continued to bring in new clients last year and spent significant effort inking a $1.5 billion deal with Deutsche Bank that solidified its ranking as number one globally in its core business. Under the deal, State Street acquired the German giant's securities servicing group, which was to deliver $700 million in new revenues to the Boston firm.

The acquisition was the largest in State Street's history and remains a challenge in terms of execution, analysts say. Brian Harvey, an analyst with Fox-Pitt, Kelton Inc. in New York, said in a report that the early revenues have been below expectations, at an annualized pace of about $576 million.

State Street last month cut another 1,800 jobs, or 10 percent of its work force, in order to save $125 million this year.

BETH HEALY

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