Peter A. Economou and a team of seven executives from the global securities finance area of State Street Corp.’s securities lending unit are leaving together to form an independent securities lending firm, industry sources said.
Marie McGehee, a State Street spokeswoman, confirmed by e-mail that Mr. Economou, executive vice president and global head of securities finance, “has decided to leave State Street to pursue startup opportunities within the industry.”
Ms. McGehee said in an interview that she did not have information about Mr. Economou’s plans; Mr. Economou could not be reached by press time.
Nick Bonn was named as an interim replacement to head the global securities finance unit, Ms. McGhee said. Mr. Bonn is executive vice president and global head of sales for State Street’s global markets and securities finance businesses.
Leaving with Mr. Economou are the following senior managing directors from the securities financing department: Paul F. Lynch, head of global trading; Suzanne N. Lee, head of North American account management, information delivery and marketing; Michael Landolfi, head of global operations; and Michael P. McAuley, chief product officer. Managing directors Larry Albaugh, Oberon Knapp and William Locke also are leaving with Mr. Economou.
Ms. McGehee declined to comment about replacements for the other seven departing employees.
“State Street has a deeply tenured team in place, virtually all of whom have been involved in building our leadership position in securities finance. Our more than 70-person strong client service and sales teams, our head of trading, head of risk management and their respective teams remain in place to service client needs,” Ms. McGehee wrote in her e-mail.
State Street’s securities lending program had oversight of an average volume of securities out on loan in the first quarter of $412 billion, according to the firm’s most recent 10-Q filing. As of March 31, the aggregate net asset value of the unregistered direct lending collateral pools underlying State Street’s securities lending program was about $84 billion, according to the SEC filing.
Clients that use State Street’s securities lending program started learning of the securities finance team departure from other sources Wednesday morning and said they had to call their State Street account representatives for more information.
“We got wind of this (the departures) and we called some of our relationship contacts and the senior guy who I deal with at State Street called me back. ….
“Apparently, these eight guys are doing a start-up. State Street advises me (that) these other seven people are primarily client-service types. But one of the people (who is leaving) is Paul Lynch … head of global trading. So that would be a more substantive guy,” Mr. Atwood said.
“I don’t know why (they left). You can speculate. There‘s probably some compensation pressure on the bank because of all the scrutiny banks are under … the (securities) litigation at State Street … or a new opportunity,” Mr. Atwood said. He added that he’s “less interested in what they’re doing than what it means for” for ISBI, which uses State Street’s securities lending platform. State Street is the Illinois fund’s master custodian.
ISBI has been conducting a search for securities lending services since January.
“One question is what (these departures) … mean day-to-day in terms of how our portfolio is being managed. The second issue is what it means in the context of the RFP,” Mr. Atwood said.
Investment staff at another State Street client, the $32.1 billion Illinois Teachers’ Retirement System, Springfield, also await more information about the impact the departure of the securities finance team will have on TRS’ securities lending activities, said R. Stanley Rupnik, chief investment officer and acting executive director, by e-mail. State Street is the fund’s global custodian.
Mr. Rupnik wrote that he has been out of the office and has not spoken to contacts at State Street yet, but had heard about the departures from the securities lending team. He wrote that “the number and unplanned nature of the departures” is cause for concern, “but we will reserve a final opinion until we are able to more fully discuss the situation and the firm’s plan going forward.”