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.