10-KPeriod: FY2007

STATE STREET CORP Annual Report, Year Ended Dec 31, 2007

Filed February 15, 2008For Securities:STTSTT-PG

Summary

STATE STREET CORP (STT) reported strong financial performance in 2007, with total revenue increasing to $8.34 billion and net income reaching $1.26 billion. This represents a significant increase from the previous year, driven primarily by growth in servicing, management, and trading fees, as well as a substantial increase in net interest revenue. The company completed a significant acquisition of Investors Financial Services Corp. for approximately $4.4 billion, which is expected to enhance its position as a service provider to institutional investors. This acquisition contributed to a notable increase in goodwill and operating expenses due to merger and integration costs. The company's balance sheet also expanded considerably, with total assets growing to $142.5 billion, largely due to the acquisition and increased investment securities. However, State Street also disclosed potential risks and uncertainties, particularly related to its involvement with "conduits" used in an asset-backed commercial paper program. While the company does not consolidate these conduits, it provides liquidity support. A hypothetical consolidation of these conduits, which hold $28.76 billion in assets, could result in an estimated after-tax loss of $530 million. Furthermore, the company faced legal exposure related to underperformance in certain active fixed-income strategies managed by SSgA, for which it established a reserve of $625 million. Despite these challenges, the company's capital ratios remain strong, and it continues to operate under a "well capitalized" regulatory status.

Financial Highlights

23 data points
Beta

Revenue

$8.34B

Net Income

$1.26B

15.1% Net Margin

EPS (Diluted)

$3.45

Free Cash Flow

$2.46B

Financial Statements
Beta
Revenue$8.34B
Interest Expense$3.48B
Net Income$1.26B
EPS (Basic)$3.49
EPS (Diluted)$3.45
Shares Outstanding (Basic)360.68M
Shares Outstanding (Diluted)365.49M

Key Highlights

  • 1Total revenue grew to $8.34 billion in 2007, up from $6.31 billion in 2006.
  • 2Net income increased to $1.26 billion in 2007, compared to $1.11 billion in 2006.
  • 3Completed a major acquisition of Investors Financial Services Corp. for approximately $4.4 billion, significantly increasing assets and goodwill.
  • 4Increased total assets to $142.5 billion as of December 31, 2007, from $107.4 billion at the end of 2006.
  • 5Established a reserve of $625 million for legal exposure related to underperformance in certain SSgA fixed-income strategies.
  • 6Managed "conduit" entities with $28.76 billion in assets, disclosing a potential $530 million after-tax loss if consolidated.
  • 7Maintained strong regulatory capital ratios, with Tier 1 leverage ratio at 5.3% for the parent company and 5.5% for the bank subsidiary.

Frequently Asked Questions

In 2007, State Street reported total revenue of $8.34 billion and net income of $1.26 billion. This represents an increase from $6.31 billion in revenue and $1.11 billion in net income in 2006, driven by growth in fee revenue and net interest revenue.

State Street acquired Investors Financial Services Corp. for approximately $4.4 billion in July 2007. This acquisition significantly increased State Street's total assets to $142.5 billion, contributed $2.71 billion in goodwill, and resulted in $198 million in merger and integration costs recorded in 2007.

State Street administers "conduits" that hold approximately $28.76 billion in assets. While not consolidated, the company provides liquidity and credit support. A hypothetical consolidation of these conduits could lead to an estimated after-tax loss of $530 million, as stated in the filing.

State Street established a reserve of $625 million to address legal exposure arising from the underperformance of certain active fixed-income strategies managed by its subsidiary, SSgA. This was primarily due to exposure to sub-prime mortgage markets.