10-QPeriod: Q3 FY2008

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 5, 2008For Securities:STTSTT-PG

Summary

State Street Corporation (STT) filed its 10-Q for the period ending September 30, 2008, amidst significant financial market turmoil. The report details the company's performance and financial condition, highlighting its resilience and proactive measures taken during the quarter. Net income saw a substantial 33% increase year-over-year, reaching $477 million, with diluted EPS growing 20% to $1.09. This growth was significantly bolstered by a $350 million pre-tax gain from the sale of its 50% interest in CitiStreet. However, the period was also marked by extraordinary items, including a $200 million provision for an indemnification obligation related to collateralized repurchase agreements with a Lehman Brothers affiliate and a $98 million reduction in net interest revenue due to SILO leveraged lease re-evaluation. The company also actively participated in the Federal Reserve’s Asset-Backed Commercial Paper Money Market Mutual Funds Liquidity Facility (AMLF), holding $76.66 billion in assets and $76.63 billion in borrowings at quarter-end, generating $8 million in net interest revenue.

Financial Highlights

22 data points
Beta

Revenue

$2.77B

Net Income

$477.00M

17.2% Net Margin

EPS (Diluted)

$1.09

Free Cash Flow

-$2.95B

Financial Statements
Beta
Revenue$2.77B
Interest Expense$502.00M
Net Income$477.00M
EPS (Basic)$1.10
EPS (Diluted)$1.09
Shares Outstanding (Basic)430.87M
Shares Outstanding (Diluted)435.03M

Key Highlights

  • 1Net income increased 33% to $477 million, and diluted EPS rose 20% to $1.09 for Q3 2008 compared to Q3 2007.
  • 2A significant $350 million pre-tax gain was recognized from the sale of the company's 50% joint venture interest in CitiStreet.
  • 3State Street participated in the Federal Reserve's AMLF, holding substantial asset-backed commercial paper and associated borrowings.
  • 4A $200 million provision was recorded for an indemnification obligation related to collateralized repurchase agreements with a Lehman Brothers affiliate.
  • 5Net interest revenue saw a $98 million reduction due to a recalculation related to SILO leveraged lease transactions.
  • 6Total revenue grew 24% to $2.77 billion, driven by the CitiStreet gain and growth in servicing and trading services.
  • 7Assets under custody decreased by 8% to $14.05 trillion, and assets under management fell to $1.69 trillion, primarily due to market instability.

Frequently Asked Questions

State Street participated in the Federal Reserve Bank of Boston's Asset-Backed Commercial Paper Money Market Mutual Funds Liquidity Facility (AMLF). The company also entered into commitments to participate in the U.S. Department of the Treasury's Capital Purchase Program, issuing $2 billion in preferred stock and a warrant to the Treasury on October 28, 2008.

The sale of State Street's 50% joint venture interest in CitiStreet on July 1, 2008, resulted in a pre-tax gain of $350 million, net of exit and other associated costs. This gain significantly contributed to the reported increase in total revenue and net income for the quarter.

The $200 million provision was recorded in the third quarter of 2008 to cover State Street's estimated net exposure related to an indemnification obligation associated with collateralized repurchase agreements with an affiliate of Lehman Brothers Holdings Inc. This provision was necessary because the market value of the underlying collateral declined, potentially falling below the indemnification obligation.

Market volatility had mixed effects. Increased currency volatility boosted trading services revenue, particularly foreign exchange trading. However, lower average equity market valuations negatively impacted management fees and servicing fees, as these are often based on assets under management or custody. Securities finance revenue benefited from wider credit spreads, though lower volumes due to market conditions partially offset this.