In a move that could set a precedent for other U.S. institutions, State Street Corp. plans to open a separate bank for its European operations.
Executives said the move would allow the bank to operate across borders in the European Community without having to obtain banking licenses from each country in which it pursues business. They added that the arrival of a single currency in Europe has also increased the need for a separate entity in Europe to run local operations.
"This gives us both a legal and strategic platform to provide services on a pan-European basis," said Stanley Shelton, executive vice president for financial markets.
Mr. Shelton added that imminent moves by 11 European countries to move to a single currency Jan. 1, 1999, combined with the pending creation of a European central bank, have added pressure on State Street to realign its activities in Europe.
Introduction of a common currency, the euro, would create a single market for securities in most of Western Europe. It is also expected to improve capital markets liquidity for investors, foster cross-border mergers and acquisitions, and provide expanded business opportunities for banks with Europewide networks.
"The lower interest rate environment created by the euro, coupled with pension reform and the expanded interest in equity investing, will create demand for the products and services in which we specialize, including quantitative investment management, trade execution and daily pricing," said David A. Spina, State Street's president and chief operating officer, in a release.
The new entity, State Street Bank Europe Ltd., has obtained approval of the Bank of England and will be based in London. Company executives said it would house all of State Street's European branches, representative offices, and locally owned banks.
State Street has been rapidly expanding its international operations, including treasury, investment management, brokerage, custody, accounting, and administration. The Boston-based financial company already has a branch in London with about 600 employees, as well as banks in Germany, Luxembourg, and France. However, sources said no other site is as strategically or conveniently located as London.
The European bank will be headed by Mr. Spina. Stefan Gavell, senior vice president and managing director, will be a managing director of the new bank, along with Alan Brown and David Bilbe.
Though some U.S. banks, including Citicorp, own locally licensed banks in Europe, most still operate mainly through branches and separately licensed local securities subsidiaries.
In London, for example, BankBoston Corp. runs BancBoston Capital Ltd., Chase Manhattan Corp. has Chase Investment Bank Ltd., and Bankers Trust New York Corp. runs Bankers Trust International PLC.
To date, the only other U.S. bank that has established a locally licensed, pan-European entity has been Republic New York Corp., which 10 years ago established Safra Republic SA, a Luxembourg-based holding company. Republic subsequently integrated all of its European operations under Safra Republic.
Executives at other U.S. banks with sizable operations in Europe, including Citicorp, Chase Manhattan Corp., and BankAmerica Corp., could not be reached for comment on the move.
However, a spokeswoman for Citicorp, which has a U.K. licensed bank under the name Citibank International, said the bank does not see any need to tie all of its European operations under a single entity.
"We already operate in every European country and have banking licenses in those countries," the spokeswoman said.