In 2009, when he was State Street Corp.'s president and chief operating officer, Jay Hooley was trying to help a major institutional client with a significant blind spot. The customer wanted to calculate its exposure to a particular market. Getting the numbers turned into a painful exercise as State Street's middle- and front-office staffers reconciled disparate data sets housed in different client systems and in nine of State Street's 29 global locations.
It took "several hours to get that answer," says Hooley.
"I knew we were on common accounting, cash and security systems," he says, but having such dispersed information meant that Boston-based State Street couldn't fulfill one of the most pressing needs to come out of the financial crisis-namely, "that the people in decision support in risk management needed that answer instantaneously," Hooley says.
"As I think about that moment, that's what we're solving for."
Like the famed road construction project that reshaped Boston's central freeway artery, State Street is in the midst of a Big Dig of its own-a project that remaps the routes to a custom-built data warehouse. It is along these new roadways that the firm will be able to transport real-time, properietary market analysis to clients, who in turn will be invited to shift their accounting, security and database systems onto State Street's private cloud.
It's a massively expensive initiative-estimated at $100 million a year for three years-but Hooley, now the firm's chairman and CEO, projects the bank eventually will reap $575 million to $625 million in cost savings by automating tasks such as software development. (State Street, which has more than $23 trillion in custodial assets under management, writes nearly all of its own software for asset management, trading and transaction services.)
The private cloud also promises a new revenue stream from clients that choose to park their data and back-office applications on the network, culling them as needed on an on-demand basis.
The project is still a year away from completion, but it's already being closely watched in the industry, not only because of State Street's influence in financial services as a major custodian bank, but because of the general direction it may provide as to the way big data can be turned into a revenue generator.
Even as more institutions buy into the promise that big data holds, there are burgeoning questions about how to attack its complexity, and about what can be mined, packaged and sold from all the information that will be streaming into back offices.
"The pure volume of computing power that we use and volume of data we were storing, it was growing faster than business was growing. Faster than revenue, faster than productivity gains," says Chris Perretta, State Street's chief information officer, who was one of the early proponents of the project alongside the firm's chief architect, Kevin Sullivan, and its recently retired chief innovation officer, Madge Meyer. "That puts pressure on our discretionary spending [for technology], which for us isn't so discretionary."
Getting an idea of what big data looks like requires the imagination of the astronomer or geologist who can better fathom what to most people would be unimaginable segments of distance or time. Big data is about information stores of an inconceivably large size. Included in the data is all of the "metadata" that tags, catalogues and references the information itself.
According to IBM, each day another 2.5 quintillion bytes of data are created, meaning that more than 90 percent of all the data that's ever been compiled by humanity (probably counting stone tablets and cave drawings) has been created just within the past two years.
At State Street Bank and State Street Global Advisors-the two principal units of State Street Corp.-the capacity needs are more modest, but the need for flexibility and the challenges of complexity are pushing the envelope of data analytics.
Clients in the money management business, for example, are looking for new kinds of on-the-spot transaction analysis with enough depth to help them make quick decisions about portfolio or risk strategies.
Over the course of the two years thus far that State Street's cloud has been under construction, the firm has rolled out more than 70 applications involving portfolio or transaction analysis. One such app introduced last year, called Gold Copy, gives money managers the ability to track transactions from end to end, as they move through trading, compliance and reporting systems.
"I think they're carving out a new level of cloud computing," says Rodney Nelsestuen, senior research director at CEB TowerGroup, "in that while it looks and acts like perhaps a public cloud, what they're really inviting people to do is not just use it on demand but to use it as sort of an outsourced arrangement."
Perretta says that Gold Copy addressed a common buy-siders' problem, in that previously there was "no single view, no single system of record for a trade as it progressed through different stages of processing.
"If we could automate the process by which we created that single record, we could also automate the process by which everybody who needed to know something about a trade when it changed-and by everybody I mean every system-was able to be totally in synch," he says.
Staying in synch avoids the need for reconciling old systems with incompatible data fields, and creates that single, dynamic source of data where updates can be viewed simultaneously across systems.
One example of where this is useful, says State Street's Jack Klinck, is in the approach that hedge funds can now take to the dreaded "Form PF," a 42-page regulatory document that funds must complete to reveal more about their exposures, short positions and investors, as part of new federal measures trying to tamp down systemic threats.
"The data elements that are needed to populate this form come from a variety of sources. They may sit on an accounting system, they might sit on a general ledger system, they might sit even on a spread sheet," says Klinck, global head of State Street's corporate development, relationship management, and data and analytics solutions groups. The cloud operations at State Street can centralize all of it, relieving hedge fund managers of the painful task of filling out almost 1,000 fields of data.
State Street's asset management clients are especially hungry for risk analytics-information that can provide instant views of how a portfolio stacks up in different scenarios, like the black-swan events nobody expects.
You don't need especially fancy infrastructure to do this. "Monte Carlo" simulations, where quants calculate differing probabilities for an array of portfolio outcomes, have been around for decades. But the investments in newer technology bring new computing power to these tests.
"The cloud is an enabler," says Klinck. "It's not the beall and endall, [but] just a tool allowing us to be more efficient, innovative and secure."
The imperative to make this tool work comes from more than just business-line pressure.
In October, The Financial Times reported on a move by four large (but unnamed)State Street shareholders to oust Hooley or other members of the management team because of dissatisfaction with the firm'sstock performance.
In the first 11 months of 2012, State Street shares rose 6 percent, failing to keep pace with the 11 percent rise in the Standard & Poor's 500 Index. Though State Street posted a 21 percent increase in third-quarter earnings, the top line shrank 2.6 percent year over year to $2.36 billion, weighed down by lackluster trading revenue.
The reported coup discussions wouldn't be the first time State Street management has found itself crosswise with shareholders. In October 2011, activist investor Nelson Peltz of Trian Fund Management published a white paper excoriating the firme_SSRqs high cost structure and uninspiring stock performance.
But the pitchforks and torches seem to have been kept at bay for now, with investors apparently giving Hooley and his team the opportunity to see their private-cloud initiative through (although in November, Chief Financial Officer Edward Resch announced plans to retire in 2013).
"I think they will be given the time," says Gerard Cassidy, an analyst with RBC Capital Markets. "I think Jay Hooley is the right guy for this job. He's a lifelong State Street guy who's been in the trenches his entire career.
Hooley, 55, had barely begun as CEO in 2010 when he began looking for ways to resolve the new demands for real-time data.
Even though he was leading from the C-suite, data processing was not Greek to him.
Of his 26 years with the firm, Hooley had spent nearly half of it leading two State Street data processing joint ventures. It was later that he shifted into a role with the global asset management business, which put him on the CEO path. He remembers the early days well, recalling an evolution in modern bank computing that brought about vast arrays of core systems, networks and data warehouses.
Like a lot of veterans in operations, he carries some fondness for the old days. "Twenty or 30 years ago, life was simpler," he says. "There was a mainframe computer, there were dumb terminals. The data was all contained [and] the mainframe computer was easier to provision."
But the simplicity soon waned.
Banks began to appreciate the value of data on customers, portfolios, markets and regulations, and started to demand more of it. But as they got what they wished for, data infrastructures evolved into specialized silos, with more information being kept in departmental domains instead of making its way through the whole enterprise.
"What we're all dealing with today," Hooley says, "is the magnitude of complexity in systems, data, geography, product lines that really overwhelms the availability of useful information."
Not long after that eye-opening encounter with the client who was scrambling for information about its market exposure in 2009, Hooley and and his team began reviewing a plan that had been put together by Perretta and Sullivan. The cloud strategy was put into motion.
"We had been playing with cloud computing for awhile and came to a realization that cloud computing, although early, was ready for commercialization," Hooley says. "If you think about an organization that oversees administration for $24 trillion worth of assets, the amount of data, if we can get it to a real-time platform, what that enables us [to do] in the way of big data opportunities is to better inform the front office" so it can support decisions in areas like risk management and compliance.
Since State Street develops its own customizable software for clients, it first had to streamline its code-writing. Perretta, who oversees more than 6,000 IT employees,has said that by 2014, the firm hopes to have shaved development costs by reducing its volume of code by 30 percent to 40 percent and cutting the test times on new applications by 30 percent.
Results like that might go a long way toward appeasing impatient shareholders, who are going to be looking to Hooley and his team for signals of progress.
"I don't think people will walk away and come back in 2015 and put thumbs up or thumbs down," RBC's Cassidy says. "I think they're going to measure his success as the implementation of the program moves forward."
What Hooley envisions is that information provided by State Street will become the basis of asset allocation models and other key functions clients, allowing them to do what Hooley calls the "what if scenarios." The scenario analysis they receive from State Street, he says, "could be populated with real time data to say if X and Y occurred, if the Euro dissolved, if Greece left the Euro, what would be the implication on my portfolio?
"So to me," Hooley says, "the cloud takes us back to the mainframe kind of world where everything is in one place and you have the ability to bring everything into one place.