8-KOther Events

STATE STREET CORP 8-K Report, Corporate Update (Jul 5, 2017)

Filed July 5, 2017For Securities:STTSTT-PG

Summary

This 8-K filing from State Street Corporation (STT) details the submission of its 2017 Resolution Plan to the Federal Reserve and FDIC. The plan outlines a "Single Point of Entry Strategy" (SPOE Strategy) to ensure orderly resolution in the event of financial distress or failure. Under this strategy, a newly formed subsidiary, State Street Intermediate Funding LLC (SSIF), is designed to recapitalize and provide liquidity to key operating entities, primarily State Street Bank and Trust Company, thereby maintaining critical financial infrastructure functions. The core of the SPOE Strategy involves a support agreement where State Street Corporation (SSC) pre-funds SSIF with assets, and in return, SSIF commits to providing capital and liquidity to "Beneficiary Entities." This structure aims to impose losses on SSC's shareholders and long-term debt holders before impacting operating subsidiary creditors, depositors, or U.S. taxpayers. The filing also acknowledges the potential for credit rating agencies to react negatively to the plan, which could affect borrowing costs and market access.

Key Highlights

  • 1State Street Corporation submitted its 2017 Resolution Plan (living will) to regulators on June 30, 2017.
  • 2The plan details a "Single Point of Entry Strategy" (SPOE Strategy) for orderly resolution in case of financial distress.
  • 3A new subsidiary, State Street Intermediate Funding LLC (SSIF), is central to the SPOE Strategy, designed to support critical entities like State Street Bank.
  • 4The SPOE Strategy aims to protect depositors and operating subsidiary creditors by imposing losses on State Street Corporation's shareholders and long-term debt holders first.
  • 5The company has pre-funded SSIF with assets and established a committed credit line and promissory notes to ensure liquidity prior to certain 'Recapitalization Events'.
  • 6A 'Recapitalization Event' is defined by specific capital/liquidity thresholds or a board decision to initiate bankruptcy proceedings.
  • 7The company acknowledges that the resolution plan or support agreement could lead to credit rating downgrades or negative watch placements, impacting borrowing costs and market access.

Frequently Asked Questions

A Resolution Plan is a strategy submitted to regulators (Federal Reserve and FDIC) by large bank holding companies like State Street. It outlines how the company would be resolved in an orderly manner under the U.S. Bankruptcy Code in the event of material financial distress or failure, aiming to minimize systemic risk and protect stakeholders.

The SPOE Strategy is State Street's preferred resolution method. It centralizes support at the parent holding company level (State Street Corporation) before it enters bankruptcy. A subsidiary, SSIF, is designed to provide capital and liquidity to key operating entities (like State Street Bank) from this single point, ensuring continued operations and protecting critical financial infrastructure.

The SPOE Strategy is designed to impose losses first on State Street Corporation's shareholders and holders of eligible long-term debt and other TLAC securities. This structure aims to prevent losses from cascading down to the creditors and depositors of State Street's operating subsidiaries, and thereby protect U.S. taxpayers from having to bear the cost of a bailout.

The filing notes that credit rating agencies may react to the resolution plan and support agreement by downgrading State Street's debt ratings, placing them on negative watch, or changing their outlook. Such actions could increase the company's cost of borrowing, limit its access to capital markets, and negatively affect the trading prices or liquidity of its outstanding debt securities.