BOSTON--(BUSINESS WIRE)--
State Street Corporation (NYSE:STT), today announced that the Board of
Governors of the Federal Reserve System has determined that, under the
stress test administered under The Supervisory Capital Assessment
Program (SCAP), State Street does not need additional capital. The
Federal Reserve concluded that State Street has a sufficient capital
buffer to withstand even the stress test's "more adverse"2
scenario.
"We're very pleased to have passed this important supervisory test by a
wide margin. Even under the test's 'more adverse' stress assumptions,
State Street's capital levels are well in excess of the required ratios
established by the supervisory authorities. The Federal Reserve's
findings are also consistent with our own long-held views of the quality
of our assets," said Ronald E. Logue, chairman and CEO of State Street.
"With the stress test completed, we are now in a position to consider
repayment of the TARP preferred stock and warrants under the appropriate
circumstances."
State Street's application of the stress test's "more adverse" scenario
and methodology on a pro-forma basis (which assumes consolidation of the
asset-backed commercial paper conduits during 2009) results in the
following projected tier 1 Capital and tier 1 Common ratios as of
December 31, 2010. The Federal Reserve in its announcement only
published these ratios as of December 31, 2008.
Targeted Minimum Ratios3 Projected Ratios as of Dec. 31,
20104
Tier 1 Capital5 6% 12.4%
Tier 1 Common6 4% 9.1%
The accompanying chart shown to the side reflects State Street's actual
Tier 1 Capital and Tier 1 Common ratios as of December 31, 2008 (as
published by the Federal Reserve) and State Street's estimates of such
ratios as of March 31, 2009, December 31, 2009 and December 31, 2010
applying the assumptions under the "baseline" and "more adverse"
scenarios as defined by the Federal Reserve7.
Set forth below are State Street's results under the stress test as
published by the Federal Reserve. The estimates in the Federal Reserve
table, including the $4.3 billion of Resources Other Than Capital
to Absorb Losses, provide an estimate of future earnings and
losses and reflect the SCAP's stress test assumptions and methodologies,
and market conditions and financial outcomes that are more severe than
State Street currently anticipates or that are reflected in the
Company's outlook for the remainder of 2009. State Street has not
provided any outlook for 2010.
Table 2: Supervisory Capital Assessment Program
Estimates for State Street Corporation for the More Adverse Economic Scenario
The estimates below represent a hypothetical 'what-if' scenario that involves an
economic outcome that is more adverse than expected. These estimates are not
forecasts of expected losses or revenues.
State Street Corporation
At December 31, 2008 $ Billions As % of RWA
Tier 1 Capital 14.1 20.2%
Tier 1 Common Equity 10.8 15.5%
Risk-Weighted Assets 69.6
Memo: UST Preferred Equity 2.0
More Adverse Scenario
Estimated for 2009 and 2010 for the More Adverse $ Billions As % of Loans
Scenario
Total Estimated Losses (Before purchase accounting 8.2
adjustments)
First Lien Mortgages -na- -na-
Second/Junior Lien Mortgages -na- -na-
Commercial and Industrial Loans 0.04 22.8%
Commercial Real Estate loans 0.3 35.5%
Credit Card Loans -na- -na-
Securities (AFS and HTM) 1.8 -na-
Trading and Counterparty -na- -na-
Other (1) 6.0 -na-
Memo: Purchase Accounting Adjustments -na-
Resources Other Than Capital to Absorb Losses (2) 4.3
SCAP Buffer Added for More Adverse Scenario
(SCAP buffer is defined as additional Tier 1
common/contingent common)
Indicated SCAP Buffer as of December 31, 2008 No Need
Less: Capital Actions and Effects of Q1 2009 Results 0.2
(3)
SCAP Buffer No Need
(1) Includes other consumer and non-consumer loans and miscellaneous commitments
and obligations
(2) Resources to absorb losses include pre-provision net revenue less the change
in allowance for the loan and lease losses
(3) Capital Actions include completed or contracted transactions since Q4 2008
Note: Numbers may not sum due to rounding
The $8.2 billion Total Estimated Losses listed in the
chart under the "more adverse" scenario primarily is comprised of $6.0
billion in Other, $1.8 billion in Securities (AFS
and HTM), $0.3 billion in Commercial Real Estate Loans,
and $0.04 billion in Commercial and Industrial Loans. Each
of these items is explained in greater detail below.
Other
For the purposes of the stress test, State Street assumed that the
asset-backed commercial paper conduits it administers would be
consolidated during 2009. State Street has reported on a pro-forma
basis the impact of conduit consolidation on its capital ratios
quarterly since the third quarter of 2007. Included in Other
is the estimated pre-tax charge of $5.9 billion ($3.6 billion after-tax)
that would be recorded upon a consolidation of the conduits during 2009.
This amount represents the difference between the book value of the
conduits' net assets and their fair value, each as of December 31, 2008.
Although State Street is not currently required to consolidate the
conduits, it continues to monitor the performance of the conduits'
assets and consolidation requirements. It is possible that some future
conditions or actions may result in the consolidation of conduits by
State Street. While the pre-tax accounting charge of $5.9 billion
(after-tax $3.6 billion) reflects the mark-to-market value at December
31, 2008, State Street believes the ultimate economic loss will be
materially lower.
Securities (AFS and HTM)
The $1.8 billion pre-tax ($1.1 billion after-tax) loss is projected
using the stress test's "more adverse" assumptions and methodologies and
is substantially less than the pre-tax mark-to-market loss on the
investment portfolio, which was $10.3 billion pre-tax ($6.3 billion
after-tax) as of December 31, 2008. This result is consistent with State
Street's long-established view that the mark-to-market loss on its
investment portfolio primarily reflects the lack of liquidity and
resulting disruption in the fixed income markets and not the credit
quality of its investment portfolio. The amount (pre-tax $1.8 billion or
$1.1 billion after-tax) reflected in this line relates entirely to State
Street's other-than-temporary impairments in its investment portfolio
under the "more adverse" stress test scenario based upon investment
portfolio balances and accounting rules in effect on December 31, 2008.
Recently announced changes in accounting rules under which impairments
to securities will be determined were not included in the stress test's
methodologies and would have a favorable impact on these results. The
impact of implementing these changes in accounting rules is estimated by
State Street to reduce the pre-tax loss of $1.8 billion to about $400
million under the "more adverse" scenario as of December 31, 2008.
Commercial and Industrial Loans and Commercial Real Estate Loans
The amounts reflected include potential losses on certain real-estate
loans that we acquired primarily in the fourth quarter of 2008 as
analyzed under "more adverse" conditions. The percentages in the table
under "as a % of loans" refer to estimated losses as a percentage of
only these loans. State Street does not engage in commercial real-estate
lending as a component of its normal investment operations.
Reflecting the nature of State Street's business, which focuses on
servicing and management for institutional investors worldwide, and the
quality of its investment portfolio, the stress test did not reflect any
losses in its other categories, such as First and Second Lien
Mortgages and Credit Card and Other Consumer Loans,
used under the Federal Reserve's analysis.
The line entitled Capital Actions and Effects of Q1 2009 Results
represents a credit of approximately $200 million to reflect the actual
increase in capital during the first quarter of 2009 based on actual
first-quarter results, relative to the projected increase in capital
during that period under the stress assumptions that were used.
The stress test results did not include any strategic actions
contemplated by State Street such as acquisitions or divestitures.
Based on Indicated Additional Capital Buffer listed in the
Federal Reserve's table of State Street estimates for the "more adverse"
scenario, the supervisory authorities determined that State Street needs
no additional capital.
State Street continues to perform against its TCE improvement plan as
announced on February 5 and updated on April 21, 2009.
------------------------------------------------------
1Represents risk-weighted assets as defined in 12
CFR 225 Appendix A.
2The stress test's "more adverse" scenario, which
included a decline in GDP of -3.3% in 2009 and an increase of 0.5% in
2010; civilian unemployment of 8.9% in 2009 and 10.3% in 2010; and house
price declines of -22% during 2009 and -7% in 2010, are described in
detail in The Supervisory Capital Assessment Program; Design and
Implementation released by the Board of Governors of the Federal Reserve
System on April 24, 2009.
3Targeted ratios set by SCAP supervisors to
determine the desired capital buffer in the stress test's "more adverse"
scenario.
4The stress test methodology under the SCAP assumed
a stressed economic and market environment in 2009 and 2010 (see note 2
above) and projected losses that the 19 participating banks would incur
and financial resources that would be available to offset those losses
if that economic scenario were to occur. The amounts displayed result
from application of the assumptions and methodologies of the "more
adverse" scenario in the stress tests, established by supervisory
authorities, do not reflect State Street's outlook for 2009 and are
based upon stress test assumptions described in note 7 below. State
Street has provided no outlook for 2010.
5Represents Tier 1 capital divided by RWA.
6Represents Tier 1 capital, less non-common
elements including qualifying perpetual preferred stock, qualifying
minority interest in subsidiaries and qualifying trust preferred
securities, divided by RWA.
7The stress test methodology under the SCAP assumed
two scenarios: one reflecting the current market outlook entitled
"baseline" scenario (described above in footnote 2 and below in footnote
7) and the other (described above in footnotes 2 and 4) entitled "more
adverse" scenario. The amounts displayed assume the losses reflected in
SCAP's loss assessment under the "baseline" and "more adverse"
scenarios, consolidation of the conduits State Street administers during
2009, no change from December 31, 2008 in outstanding common stock or
other Tier 1 capital, and internal generation of capital for 2009 and
2010 that is lower than is reflected in State Street's outlook for 2009.
These data have been prepared in accordance with the assumptions and
methodologies required by SCAP and are intended to provide some guidance
under those assumptions and methodologies as to our ratios projected by
the stress test as of the dates indicated. The Federal Reserve in its
announcement only published these ratios as of December 31, 2008. This
data does not reflect State Street's outlook for 2009 or 2010 and is not
intended as a representation of future performance or financial
condition. The stress test's "baseline" scenario, which included a
decline in GDP of -2.0% in 2009 and an increase of 2.1% in 2010;
civilian unemployment of 8.4% in 2009 and 8.8% in 2010; and house price
declines of -14% during 2009 and -4% in 2010; are described in detail in
The Supervisory Capital Assessment Program; Design and Implementation
released by the Board of Governors of the Federal Reserve System on
April 24, 2009. The test's "more adverse" scenario is described above in
footnote 2.
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:
-- 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 possibility that changes in market conditions, regulatory
activities, or asset performance (including the financial condition of
any insurer or guarantor, or the ratings, of any assets) or to
accounting rules may require any off-balance sheet activities, including
the unconsolidated asset-backed commercial paper conduits we administer,
to be consolidated into our financial statements, requiring the
recognition of associated losses;
-- the financial strength 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 securities in our investment
securities portfolio and in the unconsolidated asset-backed commercial
paper conduits we administer;
-- the results of litigation and similar disputes and, in particular, the
effect of current or potential litigation concerning SSgA's active
fixed-income strategies, and the enactment of legislation and changes in
regulation and enforcement that impact us and our customers, as well as
the effects of legal and regulatory proceedings;
-- 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;
-- our ability to obtain quality and timely services from third parties
with which we contract;
-- changes in accounting standards and practices, including changes in the
interpretation of existing standards, that impact our consolidated
financial statements; 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. We encourage investors to read our 10-K, particularly the
section on Risk Factors, and our subsequent SEC filings 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 7, 2009, and
we do not undertake efforts to revise those forward-looking statements
to reflect events after this date.
Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=5959845&lang=en
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