8-KEarnings & ResultsCorporate ChangesRegulation FD+1

STATE STREET CORP 8-K Report, Financial Results (Feb 20, 2020)

Filed February 20, 2020For Securities:STTSTT-PG

Summary

State Street Corporation (STT) filed an 8-K on February 20, 2020, to disclose an increase of $140 million to its fourth-quarter 2019 legal accrual. This adjustment relates to an ongoing invoicing matter first reported in December 2015 and impacts previously announced fourth-quarter and full-year 2019 financial results. The company has also amended its by-laws to allow for the removal of directors with or without cause. The additional accrual reflects State Street's intention to resolve pending government investigations and civil litigation. While the Department of Justice has outlined a framework for a possible resolution, and the Department of Labor's review is ongoing, there is no certainty of a settlement on acceptable terms. The company cautions that the aggregate penalties could potentially exceed the current accrual, and any outcome, particularly criminal sanctions, could materially and adversely affect operations, business, and reputation.

Key Highlights

  • 1Increased Q4 2019 legal accrual by $140 million related to an ongoing invoicing matter.
  • 2Adjusted Q4 2019 diluted EPS from $1.73 to $1.35 due to the accrual increase.
  • 3Adjusted full-year 2019 diluted EPS from $5.75 to $5.38 due to the accrual increase.
  • 4Reported a 2.6% decrease in Q4 2019 Return on Average Common Equity (ROE) and a 0.6% decrease for the full year 2019 due to the adjustment.
  • 5Amended by-laws to permit the removal of directors with or without cause, a change from requiring cause.
  • 6Provided updated financial information and an investor presentation reflecting the accrual adjustment.
  • 7Acknowledged that potential penalties could significantly exceed the current accrual and carry material adverse effects on operations and reputation.

Frequently Asked Questions

This 8-K filing is primarily to disclose an increase of $140 million to State Street's legal accrual for the fourth quarter of 2019, related to an ongoing invoicing matter. This adjustment impacts previously reported financial results for Q4 2019 and the full year 2019.

The $140 million increase in the legal accrual reduced State Street's reported diluted Earnings Per Share (EPS). For Q4 2019, EPS was adjusted downwards by $0.38 to $1.35 from the previously reported $1.73. For the full year 2019, EPS was adjusted downwards by $0.37 to $5.38 from the previously reported $5.75.

State Street intends to seek a resolution for the pending government investigations and civil litigation. While the Department of Justice has indicated a framework for a possible resolution, and the Department of Labor's review is ongoing, the company cannot assure that a settlement will be reached on acceptable terms. They also warn that potential penalties could significantly exceed the current accrual and could materially impact operations and reputation.

State Street amended its by-laws to allow for the removal of any director by shareholders with or without cause at a duly called and noticed meeting. Previously, directors could only be removed for cause.