State Street Records Net After-Tax Charge of $279 Million, or $0.71 Per Share, in the Fourth Quarter of 2007
January 03 2008 - 6:07AM
Business Wire
State Street Corporation (NYSE:STT) announced today that it will
record a net charge, after taxes, in the fourth quarter of 2007 of
$279 million, or $0.71 per share. The purpose of the charge is to
establish a reserve to address legal exposure and other costs
associated with the underperformance of certain active fixed-income
strategies managed by State Street Global Advisors (SSgA), the
company�s investment management arm, and customer concerns as to
whether the execution of these strategies was consistent with the
customers� investment intent. As a consequence of the unprecedented
events in the credit markets over the past six months, these
strategies were adversely impacted by exposure to, and the lack of
liquidity in, sub-prime mortgage markets. In aggregate, the reserve
will be $618 million on a pre-tax basis. The impact to earnings of
the net charge, after taking into account the tax effect of the
reserve and associated lower incentive compensation cost, will be
$279 million. State Street also announced that James S. Phalen,
currently executive vice president and head of international
operations for investment servicing and investment research and
trading, is returning to SSgA as interim president and chief
executive officer. Phalen, age 57, succeeds William W. Hunt who has
resigned from State Street. Phalen will report to Ronald E. Logue,
chairman and chief executive officer of State Street. The company
has initiated a global search for SSgA�s new CEO, which will focus
on both internal and external candidates. Logue said, �We have
reviewed the actively managed fixed-income strategies at SSgA that
contained investments backed by sub-prime mortgages. Based on our
review and discussions with certain customers who were invested in
these strategies, we have established this reserve to address legal
exposure and other costs relating to these strategies.� Logue
continued, �State Street values its reputation as a trusted
fiduciary to institutions around the world and recognizes the
critical importance of preserving this reputation with its
customers. Some of our customers that were invested in the active
fixed-income strategies have raised concerns that we intend to
address. Nevertheless, we will continue to defend ourselves
vigorously against inappropriate claims, including those that seek
recovery of investment losses arising solely from changes in market
conditions. With this reserve, SSgA can continue its focus on
delivering the highest quality of service to its customers and on
steadily expanding its business.� Earnings per share for 2007 are
expected to be between $3.42 and $3.45 per share, and return on
equity is expected to be approximately 13%, all on a GAAP basis. On
an operating basis, which excludes the impact of the charge
announced today, the merger and integration costs associated with
State Street�s acquisition of Investors Financial in July 2007,
and, for 2006, the effect of 2006 tax adjustments of $65 million,
or $0.20 per share, 2007 earnings per share is expected to be
between $4.54 and $4.57 per share and return on equity is expected
to be approximately 17.5%. Both operating earnings per share and
return on equity for 2007 are expected to be above the ranges
provided on October 16, 2007. This outlook for full-year earnings
per share on an operating basis compares to 2006 results of $3.46
per share. The company continues to expect to exceed the
year-over-year revenue growth range of 20% to 22% provided on
October 16, 2007. �Our business continues to be very strong, with
revenue growth expected to be in excess of 30 percent in 2007
compared to 2006. We also continue to expect to exceed our ranges
for operating earnings per share and return on equity,� said Logue.
�We remain committed to the active investment management business
and have made changes to the investment teams to address the
underperformance experienced in the active fixed income strategies
exposed to sub-prime mortgages. We are very fortunate to have an
experienced executive like Jim Phalen to step in and lead the
business and work alongside SSgA�s strong management team. His deep
understanding of State Street�s customers will allow a seamless
transition in his interim role.� In his current role, Phalen is
responsible for State Street's investment services and investment
research and trading operations outside of North America and is a
member of State Street�s Operating Group, the company's most senior
strategy and policy-making team. He spent more than five years at
SSgA as a member of its Executive Management Group managing
significant portions of SSgA�s business. In 2000, having overseen
the combination of SSgA and Citigroup�s retirement business to form
CitiStreet, he became CitiStreet�s CEO. He returned to State Street
in 2005 and was appointed head of State Street�s investment
servicing business in North America before assuming his
international role in 2007. �I welcome this opportunity to return
to SSgA and to work directly again with many of my longstanding
colleagues,� said Phalen. �SSgA has an exceptional team of
professionals, and I look forward to helping them continue to build
on their track record of growth and industry innovation.� INVESTOR
CONFERENCE CALL State Street will webcast an investor conference
call to discuss this announcement today, January 3, 2008, at 8:30
a.m. EST, available at www.statestreet.com/stockholder. The
conference call will also be available via telephone, at +1
719/325-4829 (confirmation code 4642630). Recorded replays of the
conference call will be available on the website, and by telephone
at +1 719/457-0820 (passcode 4642630), beginning at 2:00 p.m.
today. This press release is available on State Street's website,
at www.statestreet.com/stockholder, under "Investor News." About
State Street Corporation State Street Corporation (NYSE: STT) is
the world's leading provider of financial services to institutional
investors including investment servicing, investment management and
investment research and trading. With $15.1 trillion in assets
under custody and $2.0 trillion in assets under management at
September 30, 2007, State Street operates in 26 countries and more
than 100 geographic markets worldwide. For more information, visit
State Street�s web site at www.statestreet.com. About State Street
Global Advisors State Street Global Advisors, the investment
management arm of State Street Corporation (NYSE: STT), delivers
investment strategies and integrated solutions to clients worldwide
across every asset class, investment approach and style. With $2.0
trillion in assets under management as of September 30, 2007, State
Street Global Advisors has investment centers in Boston, Hong Kong,
London, Milan, Montreal, Munich, Paris, Singapore, Sydney, Tokyo
and Zurich, and offices in 25 cities worldwide. For more
information, visit State Street Global Advisors at www.ssga.com.
FORWARD-LOOKING STATEMENTS This news announcement contains
forward-looking statements as defined by United States securities
laws, including statements about the financial outlook and business
environment, exposure to claims and the adequacy of our reserve.
These statements are not guarantees of future performance, are
inherently uncertain, are based on current assumptions that are
difficult to predict and involve a number of risks and
uncertainties. Therefore, actual outcomes and results may differ
materially from what is expressed in those statements, and those
statements should not be relied upon as representing State Street's
expectations or beliefs as of any date subsequent to the date of
this release. Important factors that may affect future results and
outcomes include: State Street's ability to integrate and convert
acquisitions into its business, including the acquisition of
Investors Financial Services Corp.; the level and volatility of
interest rates, particularly in the U.S. and Europe; the
performance and volatility of securities, currency and other
markets in the U.S. and internationally; and economic conditions
and monetary and other governmental actions designed to address
those conditions; the liquidity of the US and European securities
markets, particularly the markets for fixed income securities,
including asset-backed commercial paper; and the liquidity
requirements of our customers; State Street's ability to attract
non-interest bearing deposits and other low-cost funds; the results
of litigation and similar disputes and the effect that any such
results may have on SSgA�s reputation and its ability to attract
and retain customers; the possibility that the ultimate costs of
the legal exposure associated with SSgA�s actively managed fixed
income strategies may exceed or be below the reserve, in view of
the uncertainties of the timing and outcome of litigation, and the
amounts involved; the possibility of further developments of the
nature giving rise to the legal exposure associated with SSgA's
actively managed fixed income and other investment strategies; the
performance and demand for the investment products we offer; the
competitive environment in which State Street operates; the
enactment of legislation and changes in regulation and enforcement
that impact State Street and its customers, as well as the effects
of legal and regulatory proceedings, including litigation; State
Street's ability to continue to grow revenue, control expenses and
attract the capital necessary to achieve its business goals and
comply with regulatory requirements; State Street's ability to
control systemic and operating risks; trends in the globalization
of investment activity and the growth on a worldwide basis in
financial assets; trends in governmental and corporate pension
plans and savings rates; changes in accounting standards and
practices, including changes in the interpretation of existing
standards, that impact State Street's consolidated financial
statements; and changes in tax legislation and in the
interpretation of existing tax laws by U.S. and non-U.S. tax
authorities that impact the amount of taxes due. Other important
factors that could cause actual results to differ materially from
those indicated by any forward-looking statements are set forth in
State Street's 2006 Annual Report on Form 10-K and its subsequent
SEC filings. State Street encourages investors to read its 10-K,
particularly the section on Risk Factors, and its subsequent SEC
filings for additional information with respect to any
forward-looking statements and prior to making any investment
decision. The forward-looking statements contained in this press
release speak only as of the date hereof, January 3, 2008, and
State Street will not undertake efforts to revise those
forward-looking statements to reflect events after this date.
State Street (NYSE:STT)
Historical Stock Chart
From Sep 2024 to Oct 2024
State Street (NYSE:STT)
Historical Stock Chart
From Oct 2023 to Oct 2024