UPDATE: State Street Shares Tumble After Firm Warns Investors
January 20 2009 - 10:42AM
Dow Jones News
Shares of State Street Corp. (STT) fell more than 50% on Tuesday
after the Boston-based custodial bank posted sharply lower
fourth-quarter earnings and warned investors that some obscure
off-balance-sheet assets could leave the bank at risk of heavy
losses in the future.
State Street's shares recently traded down 50.7% to $17.93.
State Street's troubles also weighed on the stock of fellow
custodial company Bank of New York Mellon Corp. (BK), which had
recently fallen 27.8% to $16.58.
Custodial banks generally hold investments and securities for
other investors but have recently faced troubles related to
secondary businesses like managing money-market funds.
State Street Corp.'s (STT) fourth-quarter net income slid 71% on
steps the asset manager took to shore up some funds and
restructuring charges, as flat results are expected for 2009.
That forecast, which compares with 2008's $5.21 and the $4.71
expected for 2009 by analysts surveyed by Thomson Reuters, is below
the company's long-term goal of 10% to 15% growth. Revenue is also
seen being unchanged, compared with State Street's 8% to 12% goal
and the 3% drop projected by analysts.
Unrealized mark-to-market losses at State Street's investment
portfolio more than doubled during the quarter to $6.3 billion,
which State Street blamed on the ongoing market illiquidity. In the
new year, the figure dropped by $400 million as of Friday.
The company also said mark-to-market losses in off-balance-sheet
conduits it administered rose to $3.6 billion in the fourth quarter
from $1.4 billion at the end of September.
The company first disclosed the losses in a regulatory filing
issued Friday after the market closed.
The stock has lost more than half its value the past three
months.
The parent of State Street Global Advisors reported net income
of $65 million, or 15 cents a share, down from $223 million, or 57
cents a share, a year earlier. Operating earnings, which excluding
the fund moves and restructuring charges in the latest quarter,
fell to $1.18 from $1.38.
Revenue rose 7.8% to $2.67 billion as net interest revenue
surged 42% as continued declines in the Fed Funds rate lowered
funding costs. That more than offset weakness in declines of
servicing revenue and management fees.
Analysts were looking for earnings of $1.14 a share on $2.42
billion in revenue.
As part of the U.S. Treasury's capital purchase program, the
Treasury bought stakes in State Street and is investing $2 billion
in the money manager. State Street, which provides large financial
institutions safekeeping for stocks and assets, was also hired to
serve as a custodian in the government's efforts to revitalize the
markets.
-By Marshall Eckblad, Dow Jones Newswires; 201-938-4306;
marshall.eckblad@dowjones.com
-By Shirleen Dorman, Dow Jones Newswires; 201-938-2310;
shirleen.dorman@dowjones.com
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