8-KEarnings & ResultsLeadership ChangesFinancial Events+1

STATE STREET CORP 8-K Report, Financial Results (Jan 18, 2012)

Filed January 18, 2012For Securities:STTSTT-PG

Summary

State Street Corporation (STT) filed this 8-K on January 18, 2012, to announce its full-year and fourth-quarter 2011 financial results, alongside significant operational changes. A key development is the company's decision to withdraw from its fixed-income trading initiative, incurring a pre-tax charge of $120 million in the fourth quarter of 2011. This charge included costs related to the wind-down of the trading portfolio and severance for targeted staff reductions. In addition to the strategic withdrawal, State Street also announced expense control measures, including a reduction in its matching contributions to the Management Supplemental Retirement Plan from 6% to 5%, effective January 1, 2012. These actions reflect management's effort to align expenses with the outlook for its capital markets-facing businesses in 2012 and to navigate the prevailing economic and market conditions.

Key Highlights

  • 1State Street announced withdrawal from its fixed-income trading initiative.
  • 2A pre-tax charge of $120 million was recorded in Q4 2011 related to these exit activities.
  • 3The charge includes $83 million for the fixed-income trading withdrawal and $37 million for severance costs.
  • 4The company is winding down the fixed-income trading initiative's portfolio, which had approximately $1.89 billion in derivative assets and $1.78 billion in derivative liabilities as of December 31, 2011.
  • 5State Street is implementing broader expense control measures, including targeted staff reductions anticipated to be substantially completed by the end of 2012.
  • 6The company amended its Management Supplemental Retirement Plan, reducing its matching contribution from 6% to 5% of eligible compensation, effective January 1, 2012.
  • 7The filing includes furnished exhibits of the earnings news release and a slide presentation on the company's investment portfolio.

Frequently Asked Questions

State Street incurred a pre-tax charge of $120 million in the fourth quarter of 2011. This charge was composed of $83 million related to the withdrawal from the fixed-income trading initiative (including trading portfolio adjustments, severance, and asset write-downs) and $37 million for other severance costs associated with targeted staff reductions.

The company is in the process of winding down the initiative's remaining trading portfolio. As of December 31, 2011, this portfolio primarily consisted of derivative assets with an aggregate fair value of approximately $1.89 billion and derivative liabilities with an aggregate fair value of approximately $1.78 billion. The wind-down may be materially affected by market conditions.

Yes, State Street announced additional expense control measures. These include targeted staff reductions, expected to be substantially completed by the end of 2012. Additionally, the company amended its Management Supplemental Retirement Plan to reduce its matching contribution from 6% to 5% of eligible compensation, effective January 1, 2012.

State Street outlines several risks, including regulatory changes (like Dodd-Frank and Basel III), financial market disruptions, economic recessions (especially in the US and Europe), liquidity of securities markets, counterparty financial strength, credit quality of its investment portfolio, and potential difficulties in integrating acquisitions or executing its business transformation program.