As margins thin and competition thickens in the global custody and asset management business, one would expect State Street Boston Corp. to be unusually downbeat.

But Ronald O'Kelley, the company's chief financial officer, maintained in a recent interview that quite the opposite is true.

The $28 billion-asset banking company stays ahead in this hotly contested business by offering customers sophisticated portfolio performance reviews and easy-to-read consolidated statements.

"Where you get your value from is all the bells and whistles, all the analytics and special add-ons," he observed. "And when it comes to bells and whistles, we're much farther down the line than anyone else."

Beating the competition has become a top priority at State Street, which has over the last decade metamorphosed from a bank into a financial services company focusing on securities custody and asset management.

State Street specializes in handling everything from simple securities safekeeping to transfer services, administration, and dividend payment, especially for fast-growing 401(k) plans.

Since 1991, assets under custody have more than doubled to $2.7 trillion from $1.13 trillion, while assets under management have quadrupled to $280 billion from $67 billion, turning State Street into one of the top three institutions in global custody, just behind Chase Manhattan Corp. and Bank of New York Co.

Having reached the top, though, State Street is far from complacent. The goals, Mr. O'Kelley emphasized, are to provide the kind of sophisticated services competitors will be hard-pressed to match and, secondly, to expand outside the United States, where operations are still relatively limited, markets are growing, and local competition is on the defensive.

Behind State Street's ongoing investments into global securities custody and asset management lies a belief by chief executive Marshall N. Carter that the businesses can only grow. The logic behind this strategy is fairly simple, Mr. O'Kelley said.

First, State Street remains convinced that as the world's population ages, social security systems will be increasingly unable to provide adequate retirement. Growing numbers of individuals as well as institutions will turn to privately managed investment funds, sparking greater demand for just the kind of services State Street provides.

Second: Fewer and fewer banks around the world will continue to spend the hundreds of millions of dollars annually on the technology and manpower needed to provide an increasingly complex array of securities processing and custody-related services. Over the next decade, Mr. O'Kelley predicted, banks in Europe and elsewhere will increasingly opt to give up asset management or asset servicing, opening up major opportunities for State Street.

Third: U.S. institutional investors and pension funds are funneling more and more money outside the United States as international capital markets expand.

To date, the narrow focus on securities processing and related services has paid off for State Street. Annual revenues grew from less than $152 million in 1980 to nearly $1.6 billion in 1995, and topped $1.8 billion for the first nine months of this year.

That works out to a 15-year, 17% compounded annual growth rate. Earnings per share have grown 17% annually over the same period, climbing to $2.95 last year from 28 cents in 1980.

"Show me another bank that can produce that kind of growth," Mr. O'Kelley said.

To be sure, it hasn't all been smooth sailing. In fact, only a few years ago, State Street's high-flying stock was badly battered after analysts grew leery of rising competition and expenses. Wall Street made it clear that it was anxious to see the securities processing business pay off - quickly.

Eventually, it did, and State Street's stock has since bounced back. The company's shares stood at TK the close of trading on Wednesday , an improvement of nearly TK% since yearend 1994 - when the stock sold for $28.625.

But even though State Street believes it can handle any challengers, some analysts still believe the bank could find itself slugging it out against cutthroat pricing and large competitors with deep pockets, or dealing with a downturn in the financial markets.

"They stole a march on everyone but they're still vulnerable to competition," said bank stock investor Harry Keefe. "Their vulnerability doesn't come from lack of dedication or will or commitment, but because this stuff is frightfully expensive," he added, referring to the high-cost of technology required for the securities processing business. "The fact that J.P. Morgan, NationsBank, Wachovia, and Bank of America have all sold off their custody businesses shows it."

Others, though, believe State Street is firmly on the right road. "We're all tied to ups and downs of capital markets in a way and that's true for commercial banks as well," said Sally Pope Davis, a banking analyst with Goldman, Sachs & Co. "But the spreads are still better in investment management than in commercial banking, so it's smart for them to get into that."

Mr. O'Kelley, for one, remains firmly bullish. "We think it's highly unlikely new competitors will get into this business because of the high capital costs and we're already holding our own against the competition today," he said.

As for any downturn in worldwide capital markets, he disclosed that based on the bank's own research, a 10% reduction in the value of equity markets worldwide would cut State Street's revenues by only about 1%, while a 10% drop in the value of the bond markets would cut revenues by less than 1%.

He also emphasized that much of State Street's future growth will come from markets outside the United States, where even the big universal European and Japanese banks will have a hard time matching State Street's growing firepower.

"Universal banks have tended to do everything but it's not clear that they have done it efficiently or that they will continue to do everything," Mr. O'Kelley said. "This is a volume-based business where you have to provide more products and more complex services in more countries."

"This business is going to consolidate and the top players are going to get bigger," he added.

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