10-KPeriod: FY2010

STATE STREET CORP Annual Report, Year Ended Dec 31, 2010

Filed February 28, 2011For Securities:STTSTT-PG

Summary

State Street Corporation's 2010 Form 10-K highlights a year of strategic acquisitions and ongoing operational enhancements, positioning the company for future growth amidst a recovering economic landscape. The company successfully integrated two significant acquisitions: Mourant International Finance Administration (MIFA) and the securities services business of Intesa Sanpaolo. These moves bolstered State Street's fund administration capabilities, expanded its global reach, and strengthened its position in key European and Asian markets. Financially, State Street navigated a complex environment marked by regulatory changes, including the implementation of the Dodd-Frank Act and ongoing considerations for Basel III capital requirements. The company reported an increase in total revenue driven by growth in servicing and management fees, bolstered by market appreciation and new business wins. However, it also incurred significant charges related to restructuring programs aimed at increasing efficiency and operational enhancements. Despite these investments and charges, State Street maintained robust regulatory capital levels, exceeding requirements and positioning it favorably for future regulatory demands. The report also details significant legal proceedings and inquiries, particularly concerning foreign exchange services, which are being actively managed.

Financial Highlights

39 data points
Beta

Revenue

$8.95B

Net Income

$1.56B

17.4% Net Margin

EPS (Diluted)

$3.09

Total Assets

$160.50B

Free Cash Flow

$561.00M

Financial Statements
Beta
Revenue$8.95B
Interest Expense$763.00M
Net Income$1.56B
EPS (Basic)$3.11
EPS (Diluted)$3.09
Shares Outstanding (Basic)495.39M
Shares Outstanding (Diluted)497.92M

Key Highlights

  • 1State Street completed strategic acquisitions of Mourant International Finance Administration (MIFA) and Intesa Sanpaolo's securities services business, expanding its global footprint and service offerings in fund administration and alternative asset servicing.
  • 2The company reported an increase in total revenue, primarily driven by a 10% rise in total fee revenue, fueled by growth in servicing fees (up 18%) and management fees (up 8%), reflecting improved market valuations and new business acquisition.
  • 3Securities finance revenue declined significantly by 44% due to lower spreads and reduced demand, reflecting the ongoing impact of market conditions on this segment.
  • 4State Street incurred substantial expenses, including a $414 million charge related to its securities lending business and $156 million in restructuring charges for a global multi-year program aimed at enhancing efficiencies and growth.
  • 5The company maintained strong regulatory capital levels, exceeding minimum requirements for both State Street and State Street Bank, positioning it well for future regulatory changes like Basel III.
  • 6Significant legal matters, including inquiries into foreign exchange pricing and class-action lawsuits related to securities lending programs, were disclosed and are being actively managed.
  • 7The company reported net income available to common shareholders of $1.54 billion, or $3.09 per diluted share, a decrease from the prior year's adjusted income, impacted by the aforementioned charges and the prior year's extraordinary loss.

Frequently Asked Questions

In 2010, State Street focused on strategic growth through acquisitions, notably completing the acquisitions of Mourant International Finance Administration (MIFA) and Intesa Sanpaolo’s securities services business. These acquisitions were aimed at strengthening its fund administration capabilities and expanding its presence in key international markets, particularly in Europe and Asia. Additionally, the company initiated a multi-year program to enhance service excellence, increase efficiencies, and position itself for accelerated growth, which included operational and information technology improvements and targeted cost initiatives.

State Street acknowledged the significant impact of the Dodd-Frank Act and ongoing international regulatory changes like Basel III. The company stated that these regulations could impose additional costs, potentially limit business opportunities, increase regulatory capital requirements, and adversely affect its business operations. State Street was actively working to comply with these evolving regulations, including undergoing a qualification period for Basel II implementation and preparing for the potential impact of Basel III, which is expected to result in higher minimum capital and liquidity requirements.

State Street's total revenue increased due to a 10% rise in fee revenue, driven by improved servicing fees (up 18%) and management fees (up 8%), reflecting higher equity market valuations and new business wins. However, securities finance revenue saw a significant decline of 44% due to lower spreads. On the expense side, total expenses increased by 15%, largely due to a $414 million charge related to its securities lending business, $156 million in restructuring charges for its global efficiency program, and merger and integration costs from recent acquisitions. The increase in salaries and benefits was also a notable factor.

State Street actively managed its investment portfolio, including repositioning it in the fourth quarter of 2010 by selling approximately $11 billion of mortgage- and asset-backed securities. This repositioning was undertaken to enhance capital ratios under evolving regulatory standards, increase balance sheet flexibility, and reduce exposure to certain asset classes. The company also addressed risks related to its securities lending programs, making a $330 million cash contribution to restore the net asset value per unit of certain SSgA-managed funds and establishing a $75 million reserve for potential inconsistencies in redemption implementation for its agency lending program.