BOSTON--(BUSINESS WIRE)--
State Street Corporation (NYSE: STT) announced today that it has
commenced a public offering of its common stock. State Street also
announced today that it plans to commence a separate public offering of
non-guaranteed senior notes in the near term. The notes will not be
guaranteed under the Federal Deposit Insurance Corporation's Temporary
Liquidity Guarantee Program. Both offerings will be conducted as public
offerings pursuant to an effective registration statement under the
Securities Act of 1933. Neither offering is conditioned upon completion
of the other.
Goldman, Sachs & Co. and Morgan Stanley are acting as joint book-running
managers for the offerings.
Subject to consultation with its banking regulators, State Street plans
to notify the US Treasury of its intention to repurchase the US
Treasury's preferred stock and common stock purchase warrant investment
in State Street under the TARP Capital Purchase Program. If permitted to
do so, the company expects to repurchase the preferred stock and warrant
with proceeds of these offerings. State Street intends to use offering
proceeds not used for this repurchase for general corporate purposes.
State Street also announced today that it elected to take action,
effective on May 15, 2009, that resulted in consolidation onto its
balance sheet of the asset-backed commercial paper conduits it
administers. The analysis conducted under the Federal Reserve's
Supervisory Capital Assessment Program (SCAP), in evaluating State
Street's capital position, assumed consolidation of these conduits onto
State Street's balance sheet during 2009. The Federal Reserve concluded
that, after consolidation of the conduits and under the assumptions and
methodology required by SCAP, State Street had a sufficient capital
buffer to withstand even the stress test's "more adverse" scenario.
In connection with the consolidation of the conduits, State Street
recorded for accounting purposes an after-tax loss of approximately $3.7
billion relating to the recognition of the unrealized mark-to-market
losses on the conduit assets. From the conduits, assets with an
aggregate book value of approximately $22.7 billion as of May 15, 2009
were consolidated onto the company's balance sheet at a fair value of
approximately $16.6 billion as of that date. Based on its credit
assessment of these assets, State Street expects that a vast majority of
the after-tax loss recorded upon consolidation will accrete as interest
revenue over the lives of the assets into the consolidated income
statement. Based upon management's current prepayment assumptions, State
Street expects approximately $475 million pre-tax to accrete as interest
revenue in 2009.
The following table1 sets forth State Street's specified
capital ratios as of March 31, 2009 on (1) an actual (unaudited) basis,
(2) adjusted to reflect the effect of conduit consolidation onto State
Street's balance sheet as if the consolidation had occurred on March 31,
2009 and (3) adjusted to reflect that conduit consolidation and the
assumed completion as of March 31, 2009 of the common stock offering
announced today.
March 31, 2009 Tier 1 Capital Tier 1 Leverage Tier 1 Common TCE
Actual (unaudited) 19.1 % 10.4 % 14.8 % 5.9 %
Ratios as adjusted for 13.2 % 7.4 % 9.0 % 2.2 %
conduit consolidation
Ratios as adjusted for
conduit consolidation and 15.1 % 8.4 % 10.8 % 3.4 %
completion of stock
offering
(1) See "Description of Table and Ratios" below for assumptions used in
calculating the above ratios, a description of the above ratios and
certain reconciliation and other information concerning the above table.
After giving effect to the consolidation of the conduits and assuming
the issuance of common stock and senior notes in the offerings, State
Street estimates that operating earnings per share for 2009 will be in a
range from $4.25 to $4.50. Operating revenues for 2009 are expected to
decline by approximately 12% relative to 2008. After consolidation,
return on equity for 2009 is expected to be approximately 17%. Estimated
operating-basis results for 2009 exclude the extraordinary loss
recognized upon the consolidation of the asset-backed commercial paper
conduits, but include an estimated $0.75 per share of accretion as
interest revenue from the conduit assets as they mature or pay down,
offset by the expected impact of the offerings and a contemplated
re-establishment of a reserve for discretionary incentive compensation
in the second half of 2009, subject to company performance.
DESCRIPTION OF TABLE AND RATIOS
The ratios set forth in the table above give effect, as noted, to the
consolidation of the conduits onto our consolidated balance sheet and
the receipt as of the date of the table of an assumed $1.45 billion of
net proceeds from the common stock offering described above, but do not
include any proceeds from the proposed senior notes offering described
above. The ratios set forth in the table above are not adjusted for the
planned repurchase of the preferred stock and related common stock
purchase warrant issued to the US Treasury under the TARP Capital
Purchase Program discussed above.
Effective May 15, 2009, we elected to take action that resulted in the
consolidation onto our consolidated balance sheet of all of the assets
and liabilities of the conduits in accordance with Financial Accounting
Standards Board Interpretation No. 46(R). For purposes of this table, we
have assumed that all of the conduits, with total assets of
approximately $22.5 billion as of March 31, 2009, were consolidated on
March 31, 2009 and that the assets of the conduits were recorded at
their fair value as of that date, that we incurred a charge in
connection with such consolidation and that our marginal tax rate was
40%. Depending upon, among other things, the measurement date of the
security, the subsequent sale price of the security may be different
from its recorded fair value. These differences may be significant
especially if the security is sold during a period of illiquidity or
market disruption or as part of a large block of securities under a
forced transaction.
Below is a description of, and other information with respect to, the
ratios in the table above.
-- Tier 1 risk-based capital, or tier 1 capital, and tier 1 leverage
ratios, as applicable, are each calculated in accordance with applicable
bank regulatory requirements and, as permitted, exclude the impact of
commercial paper purchased under the Federal Reserve Bank of Boston's
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
Facility, or AMLF.
-- Tier 1 risk-based common, or tier 1 common, ratio is calculated by
dividing (a) tier 1 capital less non-common elements including
qualifying perpetual preferred stock, qualifying minority interest in
subsidiaries and qualifying trust preferred securities, by (b)
risk-weighted assets, which assets are calculated in accordance with
applicable bank regulatory requirements. The tier 1 common ratio is not
required by U.S. generally accepted accounting principles, or GAAP, or
on a recurring basis by applicable bank regulatory requirements.
However, this ratio was used by the Federal Reserve in connection with
its stress test administered to the 19 largest U.S. bank holding
companies under the SCAP, the results of which were announced on May 7,
2009. Although we understand that the Federal Reserve does not intend to
prospectively require calculation of the tier 1 common ratio, due to the
recent timing of the SCAP, management is currently monitoring this
ratio, along with the other ratios set forth in the table above, in
evaluating State Street's capital levels and believes that, at this
time, the ratio may be of interest to investors. As used in the table
above, actual unaudited tier 1 capital as of March 31, 2009 was $14.6
billion, which capital was calculated in accordance with applicable bank
regulatory requirements. To calculate tier 1 common capital, tier 1
capital was reduced by non-common elements of capital, composed of
preferred stock of $1.9 billion as of March 31, 2009 and trust preferred
securities of $1.5 billion as of March 31, 2009. These aggregate
non-common capital elements of $3.4 billion at March 31, 2009 were
deducted from tier 1 capital of $14.6 billion at March 31, 2009,
resulting in actual unaudited tier 1 common capital of $11.2 billion at
March 31, 2009.
-- The ratio of tangible common equity to adjusted tangible assets, or TCE
ratio, is calculated by dividing total common shareholders' equity by
consolidated total assets, after reducing both amounts by goodwill and
other intangible assets net of related deferred taxes. Total assets
reflected in the TCE ratio also exclude commercial paper purchased under
the AMLF and cash balances on deposit at the Federal Reserve Bank and
other central banks in excess of required reserves. The TCE ratio is not
required by GAAP or by applicable bank regulatory requirements, but is a
metric used by management to evaluate the adequacy of State Street's
capital levels. Since there is no authoritative requirement to calculate
the TCE ratio, our TCE ratio is not necessarily comparable to similar
capital measures disclosed or used by other companies in the financial
services industry. Tangible common equity and adjusted tangible assets
are non-GAAP financial measures and should be considered in addition to,
not as a substitute for or superior to, financial measures determined in
accordance with GAAP. With respect to the calculation of the actual
unaudited TCE ratio as of March 31, 2009, a reconciliation of tangible
common equity to GAAP total common shareholders' equity is set forth
below in millions:
Total Common Shareholders' Equity. . . . . . . . . . . . . . . . . . . $ 11,969
. . . . . . . . . . . . . . . . . . .
Less:
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,493
. . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,809
. . . . . . . . .
Adjusted equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,667
. . . . . . . . .
Plus deferred tax liability 540
Total tangible common equity . . . . . . . . . . . . . . . . . . . . . $ 6,207
. . . . . . . . . .
With respect to the calculation of the unaudited TCE ratio as of March
31, 2009, a reconciliation of adjusted tangible assets to GAAP total
assets is set forth below in millions:
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 142,144
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,493
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . 1,809
. . . . . . . . . . . . . . . . . . . . .
AMLF investment securities . . . . . . . . . . . . . . . . . . . . . . 740
. . . . . . . . . . . . . . . . . .
Excess reserves held at central banks . . . . . . . . . . . . . . . . 29,963
. . . . . . . . . . . . . .
Adjusted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,139
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus:
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . 540
. . . . . . . . . . . . . . . . . . . . . . .
Total adjusted tangible assets . . . . . . . . . . . . . . . . . . . . $ 105,679
. . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION
This press release includes financial information presented on a GAAP
basis as well as on an operating basis, in addition to other measures
not presented in accordance with GAAP and used in the calculation of
identified capital ratios. Management measures and compares certain
financial information on an operating basis, as it believes that this
presentation supports meaningful comparisons from period to period and
the analysis of comparable financial trends with respect to State
Street's normal ongoing business operations. Management believes that
operating-basis financial information, which reports revenue from
non-taxable sources on a fully taxable-equivalent basis and excludes the
impact of revenue and expenses outside of the normal course of business,
facilitates an investor's understanding and analysis of State Street's
underlying financial performance and trends in addition to financial
information prepared in accordance with GAAP. Management also believes
that the use of other non-GAAP financial measures in the calculation of
identified capital ratios is useful to understanding State Street's
capital position and of interest to investors. Non-GAAP financial
measures should be considered in addition to, not as a substitute for or
superior to, financial measures determined in accordance with GAAP.
State Street has filed a registration statement (including a prospectus)
with the SEC for the offerings to which this communication relates.
Before you invest, you should read the prospectus in that registration
statement and other documents State Street has filed with the SEC for
more complete information about State Street and the offerings. You may
obtain these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov.
Alternatively, copies of the prospectus may be obtained from Goldman,
Sachs & Co. toll free at (866) 471-2526, or Morgan Stanley & Co.
Incorporated, toll free at (866) 718-1649.
This announcement does not constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction in which
such offer, solicitation or sale would be unlawful.
State Street Corporation (NYSE: STT) is the world's leading provider of
financial services to institutional investors including investment
servicing, investment management and investment research and trading.
With $11.337 trillion in assets under custody and $1.395 trillion in
assets under management at March 31, 2009, State Street operates in 27
countries and more than 100 geographic markets and employs 27,500
worldwide.
FORWARD-LOOKING STATEMENTS
This news announcement contains forward-looking statements as defined by
United States securities laws, including statements about our goals and
expectations regarding our business, financial condition, results of
operations and strategies, the financial and market outlook,
governmental and regulatory initiatives and developments, and the
business environment. These statements are not guarantees of future
performance, are inherently uncertain, are based on current assumptions
that are difficult to predict and involve a number of risks and
uncertainties. Therefore, actual outcomes and results may differ
materially from what is expressed in those statements, and those
statements should not be relied upon as representing our expectations or
beliefs as of any date subsequent to the date of this release.
Important factors that may affect future results and outcomes include,
but are not limited to:
-- global financial market disruptions and the current worldwide economic
recession, and monetary and other governmental actions designed to
address such disruptions and recession in the U.S. and internationally;
-- the impact of our consolidation for financial reporting purposes,
effective as of May 15, 2009, of the asset-backed commercial paper
conduits that we administer, including the possible increase in the
volatility of our net interest revenue, changes in the composition of
the assets on our consolidated balance sheet and the possibility that we
may be required to change the manner in which we fund those assets;
-- the financial strength and continuing viability of the counterparties
with which we or our clients do business and with which we have
investment or financial exposure;
-- the liquidity of the U.S. and international securities markets,
particularly the markets for fixed income securities, and the liquidity
requirements of our customers;
-- the credit quality and credit agency ratings of the securities in our
investment securities portfolio, a deterioration or downgrade of which
could lead to other-than-temporary impairment of the respective
securities and the recognition of an impairment loss;
-- the maintenance of credit agency ratings for our debt obligations as
well as the level of credibility of credit agency ratings;
-- the possibility of our customers incurring substantial losses in
investment pools where we act as agent, and the possibility of further
general reductions in the valuation of assets;
-- our ability to attract deposits and other low-cost, short-term funding;
-- potential changes to the competitive environment, including changes due
to the effects of consolidation, extensive and changing government
regulation and perceptions of State Street as a suitable service
provider or counterparty;
-- the level and volatility of interest rates and the performance and
volatility of securities, credit, currency and other markets in the U.S.
and internationally;
-- our ability to measure the fair value of the investment securities on
our consolidated balance sheet;
-- the results of litigation, government investigations and similar
disputes and, in particular, the effect of current or potential
proceedings concerning State Street Global Advisors', or SSgA's, active
fixed-income strategies and other investment products, and the enactment
of legislation and changes in regulation and enforcement that impact us
and our customers;
-- adverse publicity or other reputational harm;
-- our ability to pursue acquisitions, strategic alliances and divestures,
finance future business acquisitions and obtain regulatory approvals and
consents for acquisitions;
-- the performance and demand for the products and services we offer,
including the level and timing of withdrawals from our collective
investment products;
-- our ability to continue to grow revenue, attract highly skilled people,
control expenses and attract the capital necessary to achieve our
business goals and comply with regulatory requirements;
-- our ability to control operating risks, information technology systems
risks and outsourcing risks, the possibility of errors in the
quantitative models we use to manage our business and the possibility
that our controls will fail or be circumvented;
-- the potential for new products and services to impose additional costs
on us and expose us to increased operational risk, and our ability to
protect our intellectual property rights;
-- changes in government regulation or new legislation, which may increase
our costs, expose us to risk related to compliance or impact our
customers;
-- restrictions and limitations associated with our participation in the
U.S. Treasury's Troubled Asset Relief Program, or TARP, capital purchase
program and our ability to repurchase the preferred stock and warrants
issued by us under that program;
-- changes in accounting standards and practices; and
-- changes in tax legislation and in the interpretation of existing tax
laws by U.S. and non-U.S. tax authorities that impact the amount of
taxes due.
Other important factors that could cause actual results to differ
materially from those indicated by any forward-looking statements are
set forth in our 2008 Annual Report on Form 10-K and our subsequent SEC
filings, including our Current Report on Form 8-K filed on May 18, 2009.
We encourage investors to read these filings, particularly the sections
on Risk Factors, for additional information with respect to any
forward-looking statements and prior to making any investment decision.
The forward-looking statements contained in this press release speak
only as of the date hereof, May 18, 2009, and we do not undertake
efforts to revise those forward-looking statements to reflect events
after this date.
Source: State Street Corporation
Contact: State Street Corporation
Edward J. Resch, +1-617-664-1110
or
Investors:
Kelley MacDonald, +1-617-664-3477
or
Media:
Hannah Grove, +1-617-664-3377