01—Abstract
Summary
Summary of the 10-K filed February 22, 2010. Cited figures are marked; the original filing is the authoritative source.
State Street Corporation's (STT) 2009 Form 10-K highlights a challenging year marked by a significant net loss attributed to an extraordinary item related to the consolidation of asset-backed commercial paper conduits.
Despite this, the company's core operations, excluding this item, demonstrated resilience with income before the extraordinary loss decreasing by a modest 8%a year-over-year. Fee revenue saw a considerable decline, primarily due to market disruptions impacting servicing and management fees, alongside a substantial drop in securities finance revenue. However, net interest revenue remained relatively stable, benefiting from discount accretion related to the conduit consolidation, though lower interest rates and deposit volumes presented headwinds.
Financially, the company strengthened its capital position by redeeming its TARP investment and issuing new equity. The report also details significant legal and regulatory matters, including settlements for active fixed-income strategies managed by SSgA and ongoing inquiries into foreign exchange pricing practices. The company is also navigating increased regulatory scrutiny and evolving market conditions, emphasizing robust risk management and capital adequacy as key priorities.
02—Key points
Key Highlights
- State Street reported a net loss of $2.04 billion, or $4.31 per diluted share, for 2009, heavily impacted by a $3.68 billion extraordinary loss from consolidating asset-backed commercial paper conduits.
- Excluding the extraordinary loss, income available to common shareholders was $1.64 billion, a decrease of 8% from $1.79 billion in 2008, and diluted EPS declined 20% to $3.46.
- Total revenue decreased by 19% to $8.64 billion in 2009, driven by a 23% decline in total fee revenue, particularly in servicing fees and securities finance, reflecting market disruptions.
- Net interest revenue decreased slightly by 3% to $2.56 billion, partially offset by $621 million in discount accretion from the conduit consolidation, while net interest margin improved to 2.19%.
- Total expenses decreased by 24% to $5.97 billion, largely due to workforce reductions and lower incentive compensation, but included a $250 million provision for legal exposure related to SSgA fixed-income strategies.
- The company strengthened its capital by redeeming its $2 billion TARP investment and completing a $2.23 billion public offering of common stock in May 2009.
- State Street faced significant legal and regulatory challenges, including settlements for active fixed-income strategies ($313 million fair fund) and ongoing inquiries into foreign exchange pricing, with potential material adverse effects on future results.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 22, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $8.64B$10.69B | −19.2% |
| Interest Expense | $722.00M$2.23B | −67.6% |
| Net Income | -$1.88B$1.81B | −203.9% |
| EPS (Basic) | $-4.32$4.32 | −200.0% |
| EPS (Diluted) | $-4.31$4.30 | −200.2% |
| Shares Outstanding (Basic) | 470.60M413.18M | +13.9% |
| Shares Outstanding (Diluted) | 474.00M416.10M | +13.9% |
05—Questions
Frequently Asked Questions
What was the primary reason for State Street's net loss in 2009?
State Street reported a significant net loss of $2.04 billion for 2009 primarily due to an extraordinary loss of $3.68 billion (after tax) resulting from the consolidation of asset-backed commercial paper conduits onto its balance sheet in May 2009.
How did the company's core business perform in 2009, excluding the extraordinary item?
Excluding the extraordinary loss, State Street's income available to common shareholders was $1.64 billion in 2009, a decrease of 8% from $1.79 billion in 2008. This performance was affected by a 19% decrease in total revenue, largely driven by a 23% drop in fee revenue due to market disruptions, although net interest revenue remained relatively stable.
What were the main drivers of the decline in fee revenue?
The decline in fee revenue was primarily driven by the impact of market disruptions that lowered equity market valuations, affecting servicing and management fees. Additionally, securities finance revenue saw a substantial decrease due to compressed credit spreads and lower lending volumes.
What significant legal or regulatory issues did State Street address in 2009?
State Street settled investigations related to active fixed-income strategies managed by SSgA for $313 million. The company also faced ongoing inquiries and potential litigation concerning foreign exchange pricing practices with certain state pension plans, which could materially impact future revenues and reputation.
How did State Street manage its capital during 2009?
State Street took steps to strengthen its capital position by redeeming its $2 billion investment from the U.S. Treasury's TARP Capital Purchase Program and by successfully completing a $2.23 billion public offering of common stock. The company also maintained capital ratios well above regulatory requirements.
06—Continue