8-KRegulation FDOther EventsExhibits & Filings

STATE STREET CORP 8-K Report, Regulation FD Disclosure (May 18, 2009)

Filed May 18, 2009For Securities:STTSTT-PG

Summary

State Street Corporation (STT) filed this Form 8-K on May 18, 2009, primarily to disclose information related to a registered public offering of its common stock, as detailed in an accompanying investor presentation. A significant event highlighted is the consolidation of four third-party-owned, special-purpose asset-backed commercial paper (conduit) programs onto State Street's consolidated balance sheet, effective May 15, 2009. This consolidation, performed for accounting purposes, resulted in a pre-tax extraordinary loss of approximately $6.1 billion ($3.7 billion after-tax) and added $22.7 billion in par value of conduit assets to State Street's balance sheet. The filing also addresses the results of the Federal Reserve's Supervisory Capital Assessment Program (SCAP) stress test, indicating that State Street did not require additional capital, even under a more adverse scenario assuming conduit consolidation. The report extensively details numerous risk factors that could affect State Street's business, operations, and financial condition. These risks are exacerbated by the prevailing global financial market disruptions and the ongoing economic recession. Key areas of concern include counterparty risk, liquidity, the fair value measurement of assets, potential for substantial unrealized losses in investment securities, and the impact of government regulation and intervention, such as TARP restrictions. The company also updated its risk factor disclosures to reflect the conduit consolidation and other relevant information.

Key Highlights

  • 1State Street Corporation disclosed information in an 8-K filing dated May 18, 2009, related to an ongoing registered public offering of its common stock.
  • 2Effective May 15, 2009, State Street consolidated four asset-backed commercial paper (conduit) programs onto its balance sheet for accounting purposes.
  • 3This consolidation resulted in a pre-tax extraordinary loss of $6.1 billion ($3.7 billion after-tax) and the addition of approximately $22.7 billion in conduit assets.
  • 4The company announced that it successfully passed the Federal Reserve's Supervisory Capital Assessment Program (SCAP) stress test, requiring no additional capital.
  • 5The filing significantly expands on numerous risk factors, emphasizing the impact of global financial market disruptions and the economic recession.
  • 6Key risks highlighted include counterparty risk, liquidity challenges, potential for other-than-temporary impairment of investment securities, and regulatory uncertainties.
  • 7The report details the increased percentage of Level 3 assets on the balance sheet following the conduit consolidation, indicating a greater reliance on management judgment for valuations.

Frequently Asked Questions

The primary purposes of this 8-K filing are to provide information to investors in connection with a registered public offering of State Street's common stock, and to update risk factor disclosures, particularly regarding the accounting consolidation of asset-backed commercial paper conduits and the results of the Federal Reserve's stress test.

The consolidation of the four conduits onto State Street's balance sheet for accounting purposes, effective May 15, 2009, resulted in a pre-tax extraordinary loss of approximately $6.1 billion ($3.7 billion after-tax). It also added approximately $22.7 billion in par value of conduit assets and $20.9 billion in third-party liabilities (primarily short-term commercial paper) to its consolidated balance sheet. The fair value of the consolidated assets was established as their book value, creating a discount to par value that will accrete as interest revenue over time, potentially increasing net interest revenue volatility.

No, the Federal Reserve determined that State Street did not require additional capital. The company's capital buffer was sufficient to withstand even the "more adverse" scenario of the stress test, assuming the consolidation of the conduits onto its balance sheet during 2009.

The filing emphasizes risks stemming from the ongoing global financial market disruptions and economic recession. Key risks include significant counterparty exposure and the potential failure of counterparties, liquidity risks, the risk of substantial unrealized losses in investment securities becoming other-than-temporary impairments, and the impact of evolving government regulations and interventions. The consolidation of conduits also increased the proportion of Level 3 assets, requiring more management judgment for valuation and introducing potential volatility in net interest revenue.