10-QPeriod: Q2 FY2009

STATE STREET CORP Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 10, 2009For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported a significant net loss of $3.18 billion for the second quarter of 2009, largely driven by an extraordinary loss of $3.68 billion related to the consolidation of asset-backed commercial paper conduits onto its balance sheet. Excluding this extraordinary item, the company reported a net income of $370 million, a decrease from $548 million in the prior year's second quarter. Total revenue declined by 21% year-over-year, primarily due to a 24% drop in fee revenue, reflecting the adverse impact of ongoing global financial market instability on servicing and management fees. However, expenses also decreased significantly by 26%, outperforming revenue decline and leading to positive operating leverage. The company successfully repurchased its $2 billion TARP investment from the U.S. Treasury, signaling a step towards normalizing its capital structure. Despite the challenging market environment impacting fee revenues, State Street maintained strong capital adequacy ratios, exceeding regulatory requirements. The company also strengthened its liquidity position. Assets under custody and administration saw a modest increase from the end of 2008, although they declined year-over-year due to market valuations. Management is focused on navigating the current economic climate while strategically managing its balance sheet and capital. Investors should closely monitor the impact of market volatility on fee revenues and the resolution of ongoing legal and regulatory inquiries.

Financial Highlights

34 data points
Beta

Revenue

$2.12B

Net Income

-$3.18B

-150.0% Net Margin

EPS (Diluted)

$-7.12

Total Assets

$153.42B

Free Cash Flow

-$2.48B

Financial Statements
Beta
Revenue$2.12B
Interest Expense$193.00M
Net Income-$3.18B
EPS (Basic)$-7.16
EPS (Diluted)$-7.12
Shares Outstanding (Basic)463.20M
Shares Outstanding (Diluted)465.81M

Key Highlights

  • 1Reported a net loss of $3.18 billion for Q2 2009, including an extraordinary loss of $3.68 billion from conduit consolidation.
  • 2Excluding the extraordinary loss, net income was $370 million, down from $548 million in Q2 2008.
  • 3Total revenue decreased 21% to $2.12 billion, with fee revenue down 24%, reflecting market instability.
  • 4Total expenses decreased 26% to $1.36 billion, driven by lower salaries and benefits, leading to positive operating leverage.
  • 5Successfully repurchased $2 billion TARP investment from the U.S. Treasury.
  • 6Assets under custody and administration were $16.39 trillion at June 30, 2009.
  • 7Maintained strong regulatory capital ratios, exceeding minimum and well-capitalized thresholds.

Frequently Asked Questions

The substantial net loss of $3.18 billion was primarily due to an extraordinary loss of $3.68 billion (after tax) recognized in May 2009. This loss stemmed from the consolidation of asset-backed commercial paper (ABCP) conduits onto State Street's balance sheet for financial reporting purposes. This consolidation involved recognizing unrealized mark-to-market losses on the conduits' assets.

State Street experienced a significant decline in revenue, with total revenue down 21% to $2.12 billion compared to the second quarter of 2008. Fee revenue, a key driver of earnings, fell by 24%, largely attributed to the ongoing instability in global financial markets which impacted servicing and management fees.

In June 2009, State Street repurchased the preferred stock portion of the U.S. Treasury's equity investment under the TARP Capital Purchase Program, totaling approximately $2 billion. This action was funded in part by a public stock offering completed in May 2009.

State Street effectively managed its expenses, which decreased by 26% to $1.36 billion. This reduction was primarily driven by a 34% decrease in salaries and employee benefits, largely due to lower incentive compensation accruals and the impact of a previously announced reduction in force. The decrease in expenses outpaced the decline in revenue, resulting in positive operating leverage.