State Street Increases Legal Reserve Established in 2007
November 06 2009 - 7:03AM
Business Wire
State Street Corporation (NYSE: STT) today announced that it has
added $250 million, as of September 30, 2009, to the reserve it
established in 2007 to address legal exposure related to losses
incurred by investors in certain active fixed-income strategies
managed by State Street Global Advisors (SSgA). The Company
believes the adjusted reserve should be sufficient to account for a
potential resolution of proceedings by the Securities and Exchange
Commission and other governmental authorities, and to address
ongoing litigation with respect to this matter.
Since 2007, SSgA has made significant changes to its
organization, including establishing new leadership, and has made
substantial investments in its operating platform, including its
risk management and compliance operations.
State Street also announced that it recently entered into a
settlement of the purported class action with respect to ERISA
participants in the active fixed -income strategies. The proposed
settlement of $89.75 million is subject to court approval.
Prior to recording the $250 million provision for legal
exposure, the legal reserve totaled $193 million. After giving
effect to the $250 million provision, the reserve as of September
30, 2009, as adjusted is $443 million, and should be sufficient to
settle the above matters, including the purported class action.
For the third quarter of 2009, updated reported results are
earnings per share of $0.66 on net income of $327 million. Return
on common shareholders’ equity is 10.2%, down from the previously
announced 16.0%. Operating–basis results for the third quarter of
2009 exclude the provision for legal exposure and are unchanged
from the operating-basis results announced on October 20, 2009.
State Street’s outlook for the full-year 2009 remains unchanged
with operating basis revenue expected to decline about 16 percent
from the record level of 2008; operating earnings per share,
excluding the impact of the extraordinary loss recorded upon
consolidation of the commercial paper conduits in the second
quarter of 2009, and the provision for legal exposure announced
today, to be between $4.13 and $4.17 and operating return on equity
to be between 14 and 17 percent.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's
leading providers of financial services to institutional investors
including investment servicing, investment management and
investment research and trading. With $17.9 trillion in assets
under custody and administration and $1.7 trillion in assets under
management at September 30, 2009, State Street operates in 27
countries and more than 100 geographic markets worldwide. For more
information, visit State Street’s web site at
www.statestreet.com.
FORWARD-LOOKING STATEMENTS
This news announcement contains forward-looking statements as
defined by United States securities laws, including statements
about the sufficiency of the increased reserve discussed in this
news announcement, as well as about our goals and expectations
regarding our business, financial condition, results of operations
and strategies, the financial and market outlook, governmental and
regulatory initiatives and developments, and the business
environment. 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 our
expectations or beliefs as of any date subsequent to the date of
this release.
Important factors that may affect future results and outcomes
include, but are not limited to:
- financial market disruptions and
the economic recession, whether in the U.S. or internationally, and
monetary and other governmental actions designed to address such
disruptions and recession, including actions taken in the U.S. and
internationally to address the financial and economic disruptions
that began in 2007;
- increases in the potential
volatility of, or declines in the levels of, our net interest
revenue, changes in the composition of the assets on our
consolidated balance sheet and the possibility that we may be
required to change the manner in which we fund those assets;
- the financial strength and
continuing viability of the counterparties with which we or our
customers do business and to which we have investment, credit or
financial exposure;
- the liquidity of the U.S. and
international securities markets, particularly the markets for
fixed-income securities, and the liquidity requirements of our
customers;
- the credit quality, credit
agency ratings, and fair values of the securities in our investment
securities portfolio, a deterioration or downgrade of which could
lead to other-than-temporary impairment of the respective
securities and the income statement recognition of an impairment
loss;
- the maintenance of credit agency
ratings for our debt and depository obligations as well as the
level of credibility of credit agency ratings;
- the possibility of our customers
incurring substantial losses in investment pools where we act as
agent, and the possibility of further general reductions in the
valuation of assets;
- our ability to attract deposits
and other low-cost, short-term funding;
- potential changes to the
competitive environment, including changes due to the effects of
consolidation, extensive and changing government regulation and
perceptions of State Street as a suitable service provider or
counterparty;
- the level and volatility of
interest rates and the performance and volatility of securities,
credit, currency and other markets in the U.S. and
internationally;
- our ability to measure the fair
value of the investment securities on our consolidated balance
sheet;
- the results of litigation,
government investigations and similar disputes and, in particular,
the effect of current or potential proceedings concerning State
Street Global Advisors’, or SSgA’s, active fixed-income strategies
and other investment products;
- the enactment of legislation and
changes in regulation and enforcement that impact us and our
customers;
- adverse publicity or other
reputational harm;
- our ability to pursue
acquisitions, strategic alliances and divestures, finance future
business acquisitions and obtain regulatory approvals and consents
for acquisitions;
- the performance and demand for
the products and services we offer, including the level and timing
of withdrawals from our collective investment products;
- our ability to grow revenue,
attract and/or retain highly skilled people, control expenses and
attract the capital necessary to achieve our business goals and
comply with regulatory requirements;
- our ability to control operating
risks, information technology systems risks and outsourcing risks,
the possibility of errors in the quantitative models we use to
manage our business and the possibility that our controls will fail
or be circumvented;
- the potential for new products
and services to impose additional costs on us and expose us to
increased operational risk, and our ability to protect our
intellectual property rights;
- changes in government regulation
or new legislation, which may increase our costs, expose us to risk
related to compliance or impact our customers;
- changes in accounting standards
and practices; 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.
While State Street has, as announced above, determined it is
appropriate to increase its reserve for the active fixed-income
matter, State Street has not entered into a settlement agreement
with the SEC or any other governmental authority at this time and
there can be no assurance that State Street will do so in the
future. If such settlement discussions are not successful and the
SEC or other regulators were to pursue an enforcement action, they
would likely seek monetary or other penalties or remedies, which
may be greater than such reserve. There can be no assurance that
State Street will be able to agree upon terms of a settlement with
these governmental authorities and, if the Company were unable to
do so and the SEC or other governmental authorities were to
commence an enforcement proceeding, such enforcement proceeding,
and the outcome thereof, may have a material adverse effect on the
Company’s business.
Other important factors that could cause actual results to
differ materially from those indicated by any forward-looking
statements are set forth in our 2008 Annual Report on Form 10-K,
our Current Report on Form 8-K dated May 18, 2009, and our
subsequent SEC filings. We encourage investors to read these
filings, particularly the sections on Risk Factors, 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, November 6, 2009, and we do not undertake efforts to
revise those forward-looking statements to reflect events after
this date.
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