8-KOther Events

STATE STREET CORP 8-K Report, Corporate Update (Jan 17, 2008)

Filed January 17, 2008For Securities:STTSTT-PG

Summary

State Street Corporation's January 17, 2008 8-K filing provides an update on its fourth quarter and full-year 2007 financial results, alongside significant disclosures regarding potential risks and financial exposures. The company reported a decrease in diluted earnings per share for the fourth quarter of 2007 ($0.57) compared to the prior year ($0.91), primarily due to a substantial after-tax charge of $279 million related to a reserve for legal exposure and other costs stemming from the underperformance of certain active fixed-income strategies managed by State Street Global Advisors (SSgA). Despite the impact of this charge, State Street experienced strong growth in its core business areas, with assets under custody rising 29% to $15.30 trillion and assets under management increasing 13% to $1.98 trillion as of December 31, 2007. The filing also details the potential impact of consolidating asset-backed commercial paper conduits, estimating an after-tax loss of approximately $530 million if consolidation were to occur. This event highlights the complex financial landscape and the significant risk factors State Street was navigating at the time, including market volatility, integration of acquisitions, and ongoing litigation.

Key Highlights

  • 1Reported Q4 2007 diluted EPS of $0.57, down from $0.91 in Q4 2006, largely due to a $279 million after-tax charge for legal exposure related to SSgA's fixed-income strategies.
  • 2Assets under custody grew 29% year-over-year to $15.30 trillion as of December 31, 2007.
  • 3Assets under management increased 13% year-over-year to $1.98 trillion as of December 31, 2007.
  • 4Full-year 2007 diluted EPS were $3.45, an increase from $3.29 in 2006.
  • 5Disclosed a potential estimated after-tax loss of $530 million if the company were required to consolidate certain unconsolidated asset-backed commercial paper conduits.
  • 6Detailed various risk factors, including business conditions, strategic/competition, liquidity, reputational, credit, financial markets, interest rate, operational, litigation, regulatory, and accounting risks, reflecting a challenging economic environment.
  • 7Included the acquisition of Investors Financial Services Corp. on July 2, 2007, with its financial results integrated into Q4 and full-year 2007 figures.

Frequently Asked Questions

The decrease in Q4 2007 earnings per share was primarily due to a significant after-tax charge of $279 million. This charge was established as a reserve to address legal exposure and other costs associated with the underperformance of certain active fixed-income strategies managed by State Street Global Advisors (SSgA) and related customer concerns.

State Street estimated that if all four unconsolidated asset-backed commercial paper conduits, with total assets of approximately $28.8 billion, were consolidated onto its balance sheet, it would recognize an estimated after-tax loss of approximately $530 million. This estimate is based on the fair value of the conduits' assets and assumes certain other conditions.

Despite the charge related to the fixed-income strategies, State Street's core businesses showed strong growth. As of December 31, 2007, assets under custody rose 29% year-over-year to $15.30 trillion, and assets under management increased 13% year-over-year to $1.98 trillion.

The filing extensively details numerous risk factors, including general business conditions and economic risks, competition, liquidity and management, reputational damage, credit risk, financial market volatility, interest rate fluctuations, operational risks (such as system failures and employee retention), litigation risks (especially concerning SSgA's strategies), and regulatory, legal, accounting, and tax changes. These highlight the complex and uncertain environment in which State Street was operating.