10-KPeriod: FY2008

STATE STREET CORP Annual Report, Year Ended Dec 31, 2008

Filed February 27, 2009For Securities:STTSTT-PG

Summary

State Street Corporation (STT) filed its 2008 10-K on February 27, 2009. The filing details the company's financial performance and risk factors, particularly in the context of the challenging global economic and financial market conditions of 2008. Despite market disruptions, State Street demonstrated revenue growth driven by its Investment Servicing and Investment Management segments, with notable increases in trading services and securities finance revenue. The company also experienced a significant increase in net interest revenue due to favorable interest rate environments and higher customer deposits. However, State Street also reported substantial expenses related to the financial crisis, including restructuring charges, a provision for investment account infusion, and a provision for indemnification exposure. The company's substantial asset servicing and investment management businesses are sensitive to market valuations, and the filing highlights significant unrealized losses in its investment securities portfolio, which, if deemed other-than-temporary, could negatively impact earnings and capital ratios. The report also emphasizes the company's participation in the U.S. Treasury's TARP Capital Purchase Program, which imposes certain restrictions. Overall, the 2008 10-K reflects a company navigating a severe economic downturn, managing increased expenses and market risks while demonstrating resilience through revenue growth in key areas and significant capital infusions. Investors should pay close attention to the company's risk factors, capital adequacy, and its ability to manage the ongoing market disruptions.

Financial Highlights

37 data points
Beta

Revenue

$10.69B

Net Income

$1.81B

16.9% Net Margin

EPS (Diluted)

$4.30

Total Assets

$173.63B

Free Cash Flow

-$2.56B

Financial Statements
Beta
Revenue$10.69B
Interest Expense$2.23B
Net Income$1.81B
EPS (Basic)$4.32
EPS (Diluted)$4.30
Shares Outstanding (Basic)413.18M
Shares Outstanding (Diluted)416.10M

Key Highlights

  • 1Total revenue increased by 28% in 2008 to $10.69 billion, driven by strong growth in fee revenue (up 17%) and net interest revenue (up 53%).
  • 2Net income available to common shareholders was $1.79 billion, or $4.30 per diluted share, an increase from $1.26 billion, or $3.45 per diluted share, in 2007.
  • 3The company incurred significant expenses in 2008, including a $450 million provision for investment account infusion, $306 million in restructuring charges, and a $200 million provision for indemnification exposure.
  • 4State Street's participation in the U.S. Treasury's TARP Capital Purchase Program resulted in a $2 billion investment from the Treasury, which carries restrictions on dividends, stock repurchases, and employee compensation.
  • 5Assets under custody decreased by 21% to $12.04 trillion, and assets under management decreased by 27% to $1.44 trillion, primarily due to market value declines.
  • 6The company reported significant unrealized losses of $5.45 billion after-tax in its investment securities portfolio as of December 31, 2008, which could lead to impairment charges if deemed other-than-temporary.
  • 7State Street's business is highly dependent on global financial market conditions, and the filing extensively details risks associated with market disruptions, economic recession, and counterparty instability.

Frequently Asked Questions

In 2008, State Street reported total revenue of $10.69 billion, a 28% increase from 2007, driven by growth in fee revenue and net interest revenue. Net income available to common shareholders was $1.79 billion, or $4.30 per diluted share, an improvement from 2007. However, the company also incurred significant expenses related to market disruptions and restructuring.

The financial crisis of 2008 significantly impacted State Street, leading to increased expenses such as restructuring charges and provisions for investment account infusions and indemnification exposure. The company's assets under custody and management declined due to market value depreciation. State Street also faced increased credit and liquidity risks due to global financial market disruptions and the instability of financial institutions. The company's participation in the TARP program also introduced specific restrictions.

State Street identified numerous risks, including the ongoing global financial market disruptions and economic recession, the potential failure of significant counterparties, liquidity risks, credit risks in its loan portfolio, the risk of other-than-temporary impairment of investment securities, and risks associated with unconsolidated asset-backed commercial paper conduits. Additionally, the company highlighted risks related to intense competition, regulatory changes, operational failures, and reputational damage.

In October 2008, State Street received a $2 billion investment from the U.S. Treasury under the TARP Capital Purchase Program. This investment qualifies as Tier 1 regulatory capital. However, it imposed restrictions on State Street, including limitations on increasing common stock dividends, repurchasing common stock, and compensating employees, without Treasury's consent. Additional restrictions were retroactively imposed by the American Recovery and Reinvestment Act of 2009.