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

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.