SSgA Lending Funds to Receive Contribution from State Street and
Remove Redemption Restrictions,Mitigating Potential Liability
Concerns
Agency Lending Collateral Pools to Increase Client Access to
Liquidity by Year End
Company Expects to Report Second Quarter 2010 GAAP Earnings Per Share
of $0.87, Including a One-Time Tax Benefit of $0.36 Per Share, on
Revenue of $2.3 Billion and Operating-Basis Earnings Per Share of $0.93
on Revenue of $2.2 Billion
BOSTON--(BUSINESS WIRE)--
State Street Corporation (NYSE:STT) announced today that it recorded a
second quarter 2010 after-tax charge of $251 million, including a
related cash contribution to certain common and collective trust funds
managed by State Street Global Advisors (“SSgA”) that engage in
securities lending (the “SSgA lending funds”). The one-time $330 million
cash contribution establishes a market-based net asset value (“NAV”) per
unit of the collateral pools held by the SSgA lending funds of $1.00 as
of June 30, 2010. The cash contribution also enables SSgA to remove, as
of August 2010, the redemption restrictions from the SSgA lending funds
and mitigates potential liability concerns. Additionally, State Street
accrued $9 million of related costs, which are included in the charge.
State Street’s securities lending operations comprise two components:
the SSgA lending funds, referenced above, with a broad range of
investment objectives that are managed by SSgA; and an agency lending
program for third-party investment managers and asset owners, the
collateral pools for which are referred to as agency lending collateral
pools. Redemption restrictions were instituted with respect to certain
SSgA lending funds and agency lending collateral pools in the fall of
2008 during the disruption in the financial markets. State Street has
identified potential inconsistencies with its implementation of those
redemption restrictions applicable to certain agency lending collateral
pools. The Company has also established a reserve of $75 million,
reflected in the charge described above, to address these issues.
For its agency lending program clients, State Street today announced a
plan to increase client access to liquidity. By the end of 2010, State
Street intends to separate agency lending collateral pools, with total
net assets of $51.6 billion and a weighted average NAV of $0.989 as of
June 30, 2010, into two different pools. One pool will have complete
liquidity, and the other pool, holding primarily longer-dated
securities, will be subject to continued restrictions on redemptions.
Commenting on these actions, Joseph L. Hooley, State Street’s president
and chief executive officer, said, “Today’s announcement demonstrates
our commitment to resolving the challenges resulting from the market
turmoil over the past several years.”
Regarding the results for the second quarter of 2010, which will be
reported on July 20, Hooley added, “Our strong operating-basis results
are supported by momentum in our servicing fee revenue as well as
improvement in trading services fee revenue. These expected results are
consistent with the full-year operating-basis outlook we provided in the
second quarter.”
Second-Quarter 2010 Outlook
State Street expects to report revenue of $2.3 billion and earnings per
share of $0.87 for the second quarter of 2010, which includes both the
above-mentioned after-tax charge of $251 million, or $0.50 per share,
and a one-time tax benefit of $180 million, or $0.36 per share, due to
the restructuring of former non-US conduit assets.
In addition to presenting State Street’s financial results in conformity
with U.S. generally accepted accounting principles (GAAP), management
also presents results on an “operating basis” in order to highlight
comparable financial trends and other characteristics with respect to
State Street’s ongoing business operations from period to period.
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.
On an operating basis, State Street expects to report second-quarter
earnings per share of $0.93 on revenue of $2.2 billion. Operating-basis
results include approximately $(48) million of net losses related to
investment securities and a provision for credit losses of approximately
$10 million and exclude the charge and one-time tax benefit as well as
discount accretion of $172 million, merger and integration costs
associated with acquisitions of $41 million, and expense of
approximately $21 million due to a tax on bonus payments in the United
Kingdom. Operating-basis revenue includes net interest revenue on a
fully taxable-equivalent basis.
Additional Information
State Street continues to cooperate with the Securities and Exchange
Commission in its investigation, and to address civil litigation, with
respect to State Street’s securities lending programs.
State Street Corporation (NYSE: STT) is one of the world's leading
providers of financial services to institutional investors, including
investment servicing, investment management, and investment research and
trading. With $19 trillion in assets under custody and administration
and $1.9 trillion in assets under management at March 31, 2010, State
Street operates in 25 countries and more than 100 geographic markets
worldwide. For more information, visit State Street at www.statestreet.com.
Forward Looking Statements
This news release contains forward-looking statements as defined by
United States securities laws, including statements about our goals and
expectations regarding our business, including the effects of the
collateral pool contribution, actions and plans described herein,
financial condition, results of operations and strategies, the financial
and market outlook, governmental and regulatory initiatives and
developments, and the business environment. Forward-looking statements
are often, but not always, identified by such forward-looking
terminology as “plan,” “expect,” “look,” “believe,” “anticipate,”
“estimate,” “seek,” “may,” “will,” “trend,” “target” and “goal,” or
similar statements or variations of such terms. 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 news release.
Important factors that may affect future results and outcomes include,
but are not limited to:
-
changes in law or regulation that may adversely affect our, our
clients’ or our counterparties’ business activities and the products
or services that we sell, including additional or increased taxes or
assessments thereon, the requirement that additional capital be
maintained and changes that expose us to risks related to compliance;
-
financial market disruptions and the economic recession, whether in
the U.S. or internationally, and monetary and other governmental
actions, including regulation, taxes and fees, designed to address or
otherwise be responsive to such disruptions and recession, including
actions taken in the U.S. and internationally to address the financial
and economic disruptions that began in 2007;
-
increases in the volatility of, or declines in the levels 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 to which we have
investment, credit 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 clients;
-
the credit quality, credit agency ratings, and fair values 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 in
our consolidated statement of income;
-
the maintenance of credit agency ratings for our debt and depository
obligations as well as the level of credibility of credit agency
ratings;
-
the performance and demand for the products and services we offer,
including the level and timing of redemptions and withdrawals from our
collateral pools and other collective investment products;
-
the risks that acquired businesses will not be integrated
successfully, or that the integration will take longer than
anticipated, that expected synergies will not be achieved or
unexpected disynergies will be experienced, that client and deposit
retention goals will not be met, that other regulatory or operational
challenges will be experienced and that disruptions from the
transaction will harm relationships with clients, employees or
regulators;
-
the ability to complete acquisitions, divestitures and joint ventures,
including the ability to obtain regulatory approvals, the ability to
arrange financing as required, and the ability to satisfy other
closing conditions;
-
the possibility of our clients 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 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 or proceedings;
-
adverse publicity or other reputational harm;
-
our ability to grow revenue, attract and/or retain and compensate
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, and our ability to protect our
intellectual property rights, 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;
-
changes in accounting standards and practices; and
-
changes 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 2009 Annual Report on Form 10-K, and our subsequent SEC
filings. 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 news release speak only
as of the date hereof, July 7, 2010, 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
S. Kelley MacDonald, +1 617-664-2888
or
Media:
Hannah
Grove, +1 617-664-3377