UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 23, 2011
State Street Corporation
(Exact name of registrant as specified in its charter)
Massachusetts | 001-07511 | 04-2456637 | ||
(State of Incorporation) | (Commission File Number) |
(IRS Employer Identification Number) |
One Lincoln Street, Boston, Massachusetts | 02111 | |
(Address of principal executive offices) | (Zip code) |
Registrants telephone number, including area code: (617) 786-3000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act |
Item 7.01. | Regulation FD Disclosure. |
On May 24, 2011, at 8:00 a.m. (BST) (3:00 a.m. EDT), Joseph L. Hooley, Chairman, President and Chief Executive Officer of State Street Corporation, will provide a presentation at the Barclays Capital Americas Select Conference. The materials that Mr. Hooley will present are furnished herewith as Exhibit 99.1 and Exhibit 99.2, and are incorporated herein by reference. The presentation will be accessible, in listen-only mode, on State Streets investor relations home page at www.statestreet.com/stockholder. A recorded replay of the presentation will be available on the Investor Relations website beginning later that day. The webcast replay will be available for approximately two weeks.
The information in this Item 7.01, and in Exhibit 99.1 and Exhibit 99.2 attached to this Form 8-K, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall this Item 7.01, such Exhibit 99.1 or Exhibit 99.2 or any of the information contained therein, be deemed incorporated by reference in any filing under the Securities Exchange Act of 1934 or the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. | Exhibits. |
(d) | Exhibits |
99.1 | Slides for the presentation by Joseph L. Hooley at the Barclays Capital Americas Select Conference on May 24, 2011 (such Exhibit 99.1 is furnished and not filed). | |
99.2 | Reconciliations of consolidated reported results of operations to consolidated operating-basis results of operations, a description of the tier 1 common ratio, and capital ratios adjusted to reflect our estimate of the application of the Basel III capital requirements (such Exhibit 99.2 is furnished and not filed). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
STATE STREET CORPORATION | ||
By: | /s/ James J. Malerba | |
Name: | James J. Malerba | |
Title: | Executive Vice President, Corporate Controller and Chief Accounting Officer |
Date: May 23, 2011
EXHIBIT INDEX
Exhibit |
Description | |
99.1 | Slides for the presentation by Joseph L. Hooley at the Barclays Capital Americas Select Conference on May 24, 2011 (such Exhibit 99.1 is furnished and not filed). | |
99.2 | Reconciliations of consolidated reported results of operations to consolidated operating-basis results of operations, a description of the tier 1 common ratio, and capital ratios adjusted to reflect our estimate of the application of the Basel III capital requirements (such Exhibit 99.2 is furnished and not filed). |
Exhibit 99.1
Extending Our Leadership
Joseph L. Hooley
Chairman, President and
Chief Executive Officer
Barclays Capital Americas Select Conference
London
May 24, 2011
Reminder
This presentation contains forward-looking statements within the meaning of U.S. securities laws, including statements about industry trends, managements expectations about our financial performance, market growth, acquisitions and divestitures, new technologies, services and opportunities and earnings, managements confidence in our strategies and other matters that do not relate strictly to historical facts. Forward-looking statements are often identified by such forward-looking terminology as expect, look, believe, anticipate, estimate, forecast, seek, may, will, trend, target and goal, or similar statements or variations of such terms. Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on managements expectations and assumptions at the time the statements are made, and are not guarantees of future results. Managements expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, the equity, debt, currency and other financial markets, as well as factors specific to State Street and its subsidiaries, including State Street Bank. 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 May 24, 2011.
Important factors that could cause changes in the expectations or assumptions on which forward-looking statements are based include, but are not limited to: the manner in which the Federal Reserve and other regulators implement the Dodd-Frank Act and other regulatory initiatives in the U.S. and internationally, including any increases in the minimum regulatory capital ratios applicable to us and regulatory developments that result in changes to our operating model, or other changes to the provision of our services in order to comply with or respond to such regulations; required regulatory capital ratios under Basel II and Basel III, in each case as fully implemented by State Street and State Street Bank (and in the case of Basel III, when finally adopted by the Federal Reserve), which may result in the need for substantial additional capital or increased levels of liquidity in the future; changes in law or regulation that may adversely affect our, our clients or our counterparties business activities and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements and changes that expose us to risks related to compliance; financial market disruptions and the economic recession, whether in the U.S. or internationally; the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities, and the liquidity requirements of our clients; increases in the volatility of, or declines in the levels of, our net interest revenue, changes in the composition of the assets on our consolidated statement of condition 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 clients do business and to which we have investment, credit or financial exposure; 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 recognition of an impairment loss in our consolidated statement of income; delays or difficulties in the execution of our previously announced global multi-year program designed to enhance our operating model, which could lead to changes in our estimates of the charges, expenses or savings associated with the planned program, resulting in increased volatility of our earnings; the maintenance of credit agency ratings for our debt and depository obligations as well as the level of credibility of credit agency ratings; the risks that acquired businesses will not be integrated successfully, or that the integration will take longer than anticipated, that expected synergies will not be achieved or unexpected disynergies will be experienced, that client and deposit retention goals will not be met, that other regulatory or operational challenges will be experienced and that disruptions from the transaction will harm relationships with clients, employees or regulators; the ability to complete acquisitions, divestitures and joint ventures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions; the performance of and demand for the products and services we offer, including the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products; the possibility that our clients will incur substantial losses in investment pools where we act as agent, and the possibility of significant 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, 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 statement of condition; the results of litigation, government investigations and similar disputes or proceedings; our ability to control operating risks, information technology systems risks and outsourcing risks, and our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will prove insufficient, fail or be circumvented; adverse publicity or other reputational harm; our ability to grow revenue, attract and/or retain and compensate highly skilled people, control expenses and attract the capital necessary to achieve our business goals and comply with regulatory requirements; the potential for new products and services to impose additional costs on us and expose us to increased operational risk; 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 affect 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 our 2010 Annual Report on Form 10-K 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 presentation speak only as of the date hereof, May 24, 2011, and we do not undertake efforts to revise those forward-looking statements to reflect events after that date.
2 |
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Extending Our Leadership Agenda
This is State Street
Forward Focus
Global Expansion
Solutions Innovation
Operations & IT Transformation Financial Performance Summary
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Extending Our Leadership Agenda
This is State Street
Forward Focus
Global Expansion
Solutions Innovation
Operations & IT Transformation Financial Performance Summary
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This is State Street Strong Global Enterprise
Focused on Institutional Investors State Street Founded in 1792
29,000 employees globally in 26 locations servicing clients in 100 markets1
2010 operating-basis2 revenue of $8.7 billion
Global Services Assets under custody and administration: $22.6 trillion1
One of the worlds leading investment service providers
Provides fund accounting, fund administration, custody, alternative and investment manager operations outsourcing, recordkeeping, performance and analytics, and transfer agency services
1 As of March 31, 2011.
2 Financial data presented on an operating, non-GAAP basis, which is adjusted to exclude, among other things, discount accretion. For a description of operating-basis presentation and related reconciliations, see the Appendix.
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This is State Street Strong Global Enterprise
Focused on Institutional Investors Global Advisors Assets under management: $2.1 trillion*
One of the worlds largest managers of institutional assets offering a powerful global investment platform
Provides investment strategies across the risk / return spectrum of investment solutions covering every major asset class, capitalization range, region and style Global Markets Global leader in specialized investment research, trading and securities lending
A total of approximately $2.3 trillion in lendable assets*
$14 trillion in foreign exchange and equity volume traded in 2010
Provides flow-based research, innovative portfolio strategies, trade process optimization and global connectivity across multiple asset classes and markets
* As of March 31, 2011.
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This is State Street Market Position*
Global Services Global Advisors Global Markets
No 1 U.S. Mutual Fund Accounting1
No . 1 Corporate and Public Pension Fund accounting2
No. 1 Global Investment Manager Operations Outsourcing3
No. 1 Global Alternative Asset Servicing4
No. 2 globally:
Worldwide Institutional Asset Management5
Passive Manager of Domestic Equities and Bonds6
ETF provider5
No. 1 defined benefit assets6
No. 1 global equity6
No. 6 defined contribution assets7
No. 1 in Securities Finance3
Innovator in electronic trading
A leader in transition management
A leading provider of Foreign Exchange
1. The NASDAQ Stock Market Inc., Data Products, as of 12/31/10.
2. S & P Money Market Director 12/31/10 & STT estimates
3. Scrip Issue Global Report, 3/11
4. ICFA Annual Fund Administration Survey, 2010; HFN Biannual Fund Administration Survey, 6/10.
5. Pension and Investments 6/28/10.
6. Pension and Investments 5/31/10.
7. Pensions & Investments 10/4/2010.
* All of this data is based on asset size.
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Extending Our Leadership Agenda
This is State Street
Forward Focus
Global Expansion
Solutions Innovation
Operations & IT Transformation Financial Performance Summary
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Forward Focus Strategic Direction
Global Expansion
Solutions Innovation
Operations & IT Transformation
Financial Performance
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Forward Focus Global Expansion
Global Expansion
Solutions Innovation
Operations & IT Transformation
Financial Performance
10
Forward Focus Global Expansion1
Year ended 12/31/002 Year ended 12/31/10 Change
Revenue1 $3.45BN $8.71BN +152%
Non-US revenue1 $0.94BN $3.18BN +238%
Employees3 17,281 28,670 +66%
Non-US employees3 3,463 12,518 +261%
Operating-basis Revenue in $
North America Europe, Middle East, Africa Asia / Pacific
2000 $2.688BN 2000 $0.439BN 2000 $0.327BN
14,471 Employees 1,695 Employees 1,115 Employees
2010 $5.728BN 2010 $2.348BN 2010 $0.638BN
17,391 Employees 8,458 Employees 2,821 Employees
1. Financial data presented on an operating, non-GAAP basis, which is adjusted to exclude, among other things, discount accretion. For a description of operating-basis presentation and related reconciliations, see the Appendix.
2. Data exclude the revenue and employees associated with the Corporate Trust and Private Asset Management businesses divested in 2002 and 2003, respectively.
3. At period end.
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Forward Focus
Global Expansion Europe
European Collective, Pension State Street and Insurance Market Growth European AUA Growth 2005-20101 2005-20102
CAGR: 3.5% CAGR: 14.3%
$16.1TN $19.1TN $2.1TN $4.1TN
20053 20104 2005 2010
European market forecasted to grow 5.5% per year over the next 3 years4
1. Total assets include seven key European markets: UK, Netherlands, Germany, Ireland / Luxembourg offshore assets, Italy, Switzerland and France.
2. AUA represents all European assets under custody / administration.
3. Collectives: ICI (12/05); Pensions: Watson Wyatt Global Pension Asset Study (12/05); OECD Pension Market (Italy, (12/05); Insurance: CEA Insurance (12/05).
4. Collectives EFAMA 9/30/10; Strategic Insight 1/11; Pensions BCG (1/11); Insurance: BCG 1/11)
12
Forward Focus
Global Expansion Asia / Pacific
Asia / Pacific Collective, Pension State Street and Government Market Growth Asia / Pacific AUA Growth 2005 20101 2005 20102
CAGR: 9.2% CAGR: 15.0%
$10.4TN $16.2TN $484BN $972BN
20053 20104 2005 2010
Asia / Pacific market forecasted to grow 8.3% per year over the next 3 years5
1. Total assets include seven key markets: Japan, Australia, Hong Kong, South Korea, Taiwan, China and Singapore.
2. AUA represents all Asia / Pacific assets under custody / administration.
3. Collectives: ICI (12/05); Pensions: Watson Wyatt Global Pension Asset Study (01/06); Singapore Central Provident Board (12/05); Government: International Financial Statistics (12/05); Japan Post Bank Annual Reports (03/05); Economist Intelligence Unit (Taiwan, (12/05); Chungwha Post Bank (12/05); Temasek Holdings (12/05), GIC (12/05).
4. Collectives: ICI (9/10); Strategic Insight (1/11); STT estimates; Pension: Towers Watson Global Pension Study 2010; Australia (Rainmaker 1/11); China (National Council of Social Security Fund,) 12/09; Taiwan (Public Pension Fund, Bureau of Labor Insurance; Labor Insurance Fund (3/2010); Korea (National Employee Pension Service , Korea Teachers Pension 12/09; Singapore (Central Provident Board (12/09); STT estimates.
5. BCG (1/11)
13
Forward Focus
Global Expansion Contribution of Acquisitions
EUROPE Deutsche Banks Global Established State Streets leadership position in Europe Securities Services
Mourant International Established State Street as No. 1 servicer of Finance Administration alternative investments*
Intesa Sanpaulo Expanded State Streets footprint in Europe and Securities Services established leadership position in Italy
Bank of Ireland Added fundamental capabilities to SSgAs suite Asset Management of solutions
NORTH IFS Added hedge fund servicing capability AMERICA
Currenex Expanded electronic high-speed trading capability
Palmeri Accelerated State Streets leadership in private equity servicing
Investors Financial Expanded share of mutual fund and hedge fund servicing markets
* ICFA Annual Fund Administration Survey, 2010; HFN Biannual Fund Administration Survey 6/10.
14
Forward Focus Global Expansion
Top 20 Companies by AUC / AUA* ($TN)
25.0 $25
21.5 US
$20 Europe
16.1
Asia / Pacific
$15 12.6 $10
7.3 7.1
5.2 4.7 4.5
$5 4.1 3.6
3.0 2.8 2.4
1.1 0.9 0.8 0.7 0.6 0.4 $0
CitiSS AG SIS UFJ
NAB SEB Trust Dexia Pictet Mellon Morgan Paribas SIX Nordea STREET Societe CACEIS Brothers UBS Bancorp Generale BNY TE JP BNP HSBC itsubishi orthern RBC US Santander own STA M N Br
Source: Company reports, Global Custody.net, Institutional Investor Global Custodian Survey.
* Data for BNY, State Street, & CACEIS reflect AUA as of 12/31/2010; as of 9/30/10 for, BNP Paribas, Societe Generale, & Brown Brothers; as of 6/30/10 for RBC Dexia & HSBC ; all others reflect AUC data: JP Morgan, Citi, & Northern Trust as of 12/31/10; Nordea, NAB, & SEB as of 9/30/10; Pictet as of 6/30/10; Mitsubishi, UBS, SIX SIS, & Santander: as of 3/31/10.
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Forward Focus Solutions Innovation
Global Expansion
Solutions Innovation
Operations & IT Transformation
Financial Performance
16
Forward Focus
Solutions Innovation Global Services
Key Client Drivers Flight to quality and safety
Cost pressures on asset managers and asset owners
Heightened regulatory environment
Growing need for transparency, risk management and compliance
Solutions Investment manager operations outsourcing $7.1 trillion in middle-office assets under administration as of 12/31/10
Enhanced collateral management, risk services and derivative processing
Alternative investment servicing
Data and analytics
17
Forward Focus
Solutions Innovation Global Advisors
Key Client Drivers Demand for solutions-based management that spans risk / return spectrum
Focus on retirement funding levels; asset allocation decisions
Increasing demand for global mandates across asset classes
Solutions Defined contribution
Building on strong DB and recordkeeping relationships
Move towards passive and target-date funds
Cash investment management
$446 billion in cash AUM as of 3/31/11
Diverse product set creates opportunities in global markets
ETFs: $260 billion as of 3/31/11
Strong SPDR brand awareness
Investment Management Solutions
Leading LDI manager
18
Forward Focus
Operations & IT Transformation
Global Expansion
Solutions Innovation
Operations & IT Transformation
Financial Performance
19
Forward Focus
Operations & IT Transformation
Supporting Growth Market expansion
Mergers and acquisitions
Geographic expansion
Enabling Productivity Business process excellence
Flexible global workforce
Global shared services
Accelerating Innovation Business process excellence
Enabling private cloud technology
Improving development time
Benefiting the Client Service excellence
Time to market
New products and services
20
Forward Focus
Operations & IT Transformation Financial Profile
2011 2014
Net Benefit Expect to achieve annual pre-tax run rate savings of between $575MN to $625MN by the end of 2014
Cumulative Net Operating Impact 2011: slight benefit
2012: about 1/3 of the total expected
2013: about 2/3 of the total expected
2014: 100% of total expected
Implementation Expenses Incremental costs to range between $15MN to $20MN per quarter
Costs are expected to peak in 2012 and trail off in 2014
Restructuring Charges Expect about $400MN to $450MN
$156MN in 2010
Expect charges to peak in 2012, similar to the ramp of the implementation expenses
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Forward Focus Financial Performance
Global Expansion
Solutions Innovation
Operations & IT Transformation
Financial Performance
22
Forward Focus Financial Performance
Continuing to Win Momentum in core business
New Business 75% of new wins from existing clients in 2010
2011 Outlook First-quarter performance
Key assumptions for 2011
Enhanced risk management
Strong Capital Position Well positioned to meet Basel III requirements
Increased quarterly dividend to $0.18 per share
Board approved up to $675MN in share purchase program for 2011
23
Forward Focus
Financial Performance Winning New Business
New Wins in Q1 Wins Yet to 2010 Wins Yet Total to Be
Q1 2011 Be Installed to Be Installed Installed in 2011
Business ($BN)* ($BN)* ($BN)* ($BN)*
US Asset Servicing $95 $30 $168 $198
Non-US Asset Servicing $207 $158 $109 $267
Total Asset Servicing $302 $188 $277 $465
US Asset Management $109 $16 $0 $16
Non-US Asset Management $61 $1 $0 $1
Total Asset Management $170 $17 $0 $17
* Assets as of 3/31/11
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Forward Focus
Financial Performance First-Quarter 20111
BUSINESS AND FINANCIAL OVERVIEW
$ in Millions 3/31/11 3/31/10 Change
Revenue1 $2,330 $2,116 +10.1%
Expenses1 $1,683 $1,566 + 7.5%
EPS1 $0.88 $0.75 +17.3%
ROE1 9.9% 10.0% (10) bps
Positive Operating Leverage2 260 bps
1. Financial data presented on an operating, non-GAAP basis, which is adjusted to exclude, among other things, discount accretion. For a description of operating-basis presentation and related reconciliations, see the Appendix.
2. Operating leverage represents the difference between the growth rate of total revenue and the growth rate of total expenses, each determined on an operating basis.
25
Forward Focus
Financial Performance Strong Capital Position
Capital Ratios State Street Corporation
3/31/11 Actual 3/31/11 Adjusted to
Under Basel I Reflect Basel III Proposals2
Tier 1 Capital 19.6% 11.4%
Tier 1 leverage 8.7% 6.3%
Tier 1 Common Ratio1 17.5% 10.2%
Total Capital 21.6% 12.6%
1. The tier 1 common ratio is not required by GAAP or on a recurring basis by bank regulations. See Appendix for a description of this ratio and related reconciliations.
2. Calculated based on State Streets estimates, based upon published statements of the Basel Committee and the Federal Reserve, of the effects of the requirements under Basel III affecting capital. See Appendix for a description of the specified capital ratios and related reconciliations of these ratios to ratios calculated under presently applicable requirements.
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Forward Focus
Financial Performance Expectations Driving 2011 Outlook
Continued strength in servicing fee revenue
Modest improvement in management fee revenue
Conservative approach to addressing market-driven revenue
Balance sheet to generate an average NIM in the upper half of the 155 to 165 BPS range in 2011
Disciplined expense control
Focused on executing on a multi-year plan to transform our business model through technological innovation
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Extending Our Leadership Agenda
This is State Street
Forward Focus
Global Expansion
Solutions Innovation
Operations & IT Transformation Financial Performance Summary
28
Extending Our Leadership Summary
Well-Positioned Against Secular Growth Trends
Deep Global Infrastructure and Client Base
Delivering Long-Term Shareholder Value Market Leadership in High-Growth Areas
Strong Financial and Capital Position
29
State Street®
30
State Street®
31
Exhibit 99.2
Appendix
1 |
Non-GAAP Financial Measures
This presentation includes financial information presented on a GAAP basis as well as on an operating basis. Operating-basis financial information is a non-GAAP presentation. Management measures and compares certain financial information on an operating basis, as it believes that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Streets normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of business, facilitates an investors understanding and analysis of State Streets underlying financial performance and trends in addition to financial information prepared in accordance with GAAP.
This presentation also includes capital ratios in addition to, or adjusted from, those calculated in accordance with applicable regulatory requirements. These include capital ratios based on tier 1 common capital and capital ratios adjusted to reflect our estimate of the application of the Basel III capital requirements. These non-regulatory and adjusted capital measures are non-GAAP financial measures. Management presently evaluates the non-GAAP capital ratios presented in this presentation to aid in its understanding of State Streets capital position under a variety of standards, including presently applicable and evolving regulatory requirements. Management believes that the use of the non-GAAP capital ratios described in this presentation similarly aids in an investors understanding of State Streets capital position and therefore is of interest to investors.
In addition to the reconciliations described in the discussions on the next slide of the capital ratios referenced in this presentation, the Appendix to this presentation also includes reconciliations of operating-basis results to GAAP-basis results and Basel III-adjusted capital ratios to capital ratios calculated under presently applicable requirements.
Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP and capital ratios determined in accordance with presently applicable regulatory requirements.
2 |
Capital Ratios
The total capital, the tier 1 capital, and the tier 1 leverage ratios are capital ratios used regularly by bank regulatory authorities to evaluate State Streets capital adequacy. The tier 1 common ratio is sometimes used by the Federal Reserve in connection with its supervisory capital assessment programs.
The total capital, the tier 1 risk-based capital, or tier 1 capital, and tier 1 leverage ratios, as applicable, are each calculated in accordance with applicable bank regulatory requirements.
The tier 1 risk-based common, or tier 1 common, ratio is calculated by dividing (a) tier 1 capital less non-common elements including qualifying perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust preferred securities, by (b) total risk-weighted assets, which assets are calculated in accordance with applicable bank regulatory requirements. The tier 1 common ratio is not required by GAAP or on a recurring basis by bank regulations. Management is currently monitoring this ratio, along with the other capital ratios described in this presentation, in evaluating State Streets capital levels and believes that, at this time, the ratio may be of interest to investors. A reconciliation with respect to tier 1 common capital as of March 31, 2011 is provided in the Appendix.
3 |
STATE STREET CORPORATION
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
State Street prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. State Street also presents certain financial information on an operating basis as well as a GAAP, or reported, basis. Management measures and compares certain financial information on an operating basis, as it believes that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Streets normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue outside of the normal course of business, facilitates an investors understanding and analysis of State Streets underlying financial performance and trends in addition to financial information prepared in accordance with GAAP.
(Dollars in millions) |
Year Ended December 31, 2000 | Year Ended December 31, 2010 | % Change | |||||||||||||||||||||||||
Reported Results |
Adjustments | Operating - Basis Results |
Reported Results |
Adjustments | Operating - Basis Results |
2010 vs 2009 |
||||||||||||||||||||||
Total fee revenue |
$ | 2,690 | $ | (197 | ) (1) | $ | 2,493 | $ | 6,540 | $ | 6,540 | |||||||||||||||||
Net interest revenue |
894 | 65 | (2) | 959 | 2,699 | $ | (583 | ) (3) | 2,116 | |||||||||||||||||||
Gains related to investment securities, net |
2 | | 2 | (286 | ) | 344 | (4) | 58 | ||||||||||||||||||||
Total revenue |
$ | 3,586 | $ | (132 | ) | $ | 3,454 | $ | 8,953 | $ | (239 | ) | $ | 8,714 | 152.3 | % |
(1) | Represents revenue associated with the Corporate Trust and Private Management businesses divested in 2002 and 2003, respectively. |
(2) | Represents tax-equivalent adjustment of $65 million, not included in reported results. |
(3) | Represents tax-equivalent adjustment of $129 million, not included in reported results, net of $712 million of discount accretion related to former conduit securities. |
(4) | Represents a net loss related to a repositioning of the investment portfolio. |
STATE STREET CORPORATION
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
State Street prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. State Street also presents certain financial information on an operating basis as well as a GAAP, or reported, basis. Management measures and compares certain financial information on an operating basis, as it believes that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Streets normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of business, facilitates an investors understanding and analysis of State Streets underlying financial performance and trends in addition to financial information prepared in accordance with GAAP.
(Dollars in millions, except per share amounts) |
Year Ended December 31, 2009 | Year Ended December 31, 2010 | % Change | |||||||||||||||||||||||||
Reported Results |
Adjustments | Operating Results |
Reported Results |
Adjustments | Operating Results |
2010 vs 2009 |
||||||||||||||||||||||
Total fee revenue |
$ | 5,935 | $ | 5,935 | $ | 6,540 | $ | 6,540 | ||||||||||||||||||||
Net interest revenue |
2,564 | $ | (502 | )(1) | 2,062 | 2,699 | $ | (583 | )(7) | 2,116 | ||||||||||||||||||
Gains (Losses) related to investment securities, net |
141 | | 141 | (286 | ) | 344 | (8) | 58 | ||||||||||||||||||||
Total revenue |
8,640 | (502 | ) | 8,138 | 8,953 | (239 | ) | 8,714 | 7.1 | % | ||||||||||||||||||
Provision for loan losses |
149 | | 149 | 25 | | 25 | ||||||||||||||||||||||
Total expenses |
5,966 | (299 | )(2) | 5,667 | 6,842 | (666 | )(9) | 6,176 | 9.0 | % | ||||||||||||||||||
Income before income tax expense and extraordinary loss |
2,525 | (203 | ) | 2,322 | 2,086 | 427 | 2,513 | |||||||||||||||||||||
Income tax expense |
722 | (156 | )(3) | 566 | 530 | 146 | (10) | 676 | ||||||||||||||||||||
Tax-equivalent adjustment |
| 126 | (4) | 126 | | 129 | (4) | 129 | ||||||||||||||||||||
Income before extraordinary loss |
1,803 | (173 | ) | 1,630 | 1,556 | 152 | 1,708 | |||||||||||||||||||||
Extraordinary loss, net of tax |
(3,684 | ) | 3,684 | (5) | | | | | ||||||||||||||||||||
Net income (loss) |
$ | (1,881 | ) | $ | 3,511 | $ | 1,630 | $ | 1,556 | $ | 152 | $ | 1,708 | |||||||||||||||
Adjustments to net income (loss): |
||||||||||||||||||||||||||||
Prepayment of preferred stock discount |
$ | (106 | ) | $ | 106 | (6) | $ | | ||||||||||||||||||||
Dividend on preferred stock |
(46 | ) | | (46 | ) | |||||||||||||||||||||||
Accretion of preferred stock discount |
(11 | ) | | (11 | ) | |||||||||||||||||||||||
Earnings allocated to participating securities |
| | | $ | (16 | ) | $ | (2 | ) (11) | $ | (18 | ) | ||||||||||||||||
(163 | ) | 106 | (57 | ) | (16 | ) | $ | (2 | ) | $ | (18 | ) | ||||||||||||||||
Net income before extraordinary loss available to common shareholders |
$ | 1,640 | $ | (67 | ) | $ | 1,573 | 1,540 | $ | 150 | $ | 1,690 | ||||||||||||||||
Net income (loss) available to common shareholders |
$ | (2,044 | ) | $ | 3,617 | $ | 1,573 | 1,540 | $ | 150 | $ | 1,690 | ||||||||||||||||
Diluted earnings per common share before extraordinary loss |
$ | 3.46 | $ | (.14 | ) | $ | 3.32 | 3.09 | $ | .31 | $ | 3.40 | 2.4 | % | ||||||||||||||
Diluted earnings (loss) per common share |
(4.31 | ) | 7.63 | 3.32 | 3.09 | $ | .31 | $ | 3.40 | |||||||||||||||||||
Average diluted common shares outstanding (in thousands) |
474,003 | 474,003 | 474,003 | 497,924 | 497,924 | 497,924 | ||||||||||||||||||||||
Return on common equity before extraordinary loss |
13.2 | % | (0.6 | )% | 12.6 | % | 9.5 | % | 0.9 | % | 10.4 | % |
(1) | Represents tax-equivalent adjustment of $126 million, not included in reported results, net of $24 million of revenue related to the AMLF, $621 million of discount accretion related to former conduit securities and interest expense of $17 million related to the AMLF. |
(2) | Represents $250 million related to a provision for legal exposure associated with certain fixed-income strategies managed by SSgA and $49 million of merger and integration costs. |
(3) | Represents net tax effect of non-operating adjustments. |
(4) | Represents tax-equivalent adjustment, not included in reported results. |
(5) | Represents extraordinary loss related to the May 2009 consolidation of the asset-backed commercial paper conduits onto State Streets balance sheet. |
(6) | Represents $106 million of prepayment of preferred stock discount in connection with redemption of the U.S.Treasurys preferred stock investment under the TARP Capital Purchase Program. |
(7) | Represents tax-equivalent adjustment of $129 million, not included in reported results, net of $712 million of discount accretion related to former conduit assets. |
(8) | Represents a net loss related to a repositioning of the investment portfolio. |
(9) | Represents a $7 million tax on bonus payments to employees in the U.K.; a $414 million charge, composed of a one-time cash contribution of $330 million to SSgA lending fund collateral pools and liquidating trusts and $9 million of associated costs, and $75 million to establish a reserve to address potential inconsistencies in connection with the application of redemption restrictions applicable to cash collateral pools underlying the agency lending program, and $245 million of acquisition and restructuring costs (composed of $156 million of restructuring charges related to a business operations and information technology transformation program and merger and integration costs of $89 million). |
(10) | Represents a discrete tax benefit of $180 million generated by the restructuring of former non-U.S. conduit securities, net of the net tax effect of non-operating adjustments. |
(11) | Represents effect of the difference between reported and operating-basis earnings on allocation to participating securities. |
STATE STREET CORPORATION
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
State Street prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. State Street also presents certain financial information on an operating basis as well as a GAAP, or reported, basis. Management measures and compares certain financial information on an operating basis, as it believes that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Streets normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of business, facilitates an investors understanding and analysis of State Streets underlying financial performance and trends in addition to financial information prepared in accordance with GAAP.
(Dollars in millions, except per share amounts) |
Quarter Ended March 31, 2010 | Quarter Ended March 31, 2011 | % Change | |||||||||||||||||||||||||
Reported Results |
Adjustments | Operating-Basis Results |
Reported Results |
Adjustments | Operating-Basis Results |
Q1 2011 vs Q1 2010 |
||||||||||||||||||||||
Total fee revenue |
1,540 | $ | 1,540 | $ | 1,791 | $ | 1,791 | |||||||||||||||||||||
Net interest revenue |
661 | $ | (180 | )(1) | 481 | 577 | $ | (31 | )(6) | 546 | ||||||||||||||||||
Gains (Losses) related to investment securities, net |
95 | | 95 | (7 | ) | | (7 | ) | ||||||||||||||||||||
Total revenue |
2,296 | (180 | ) | 2,116 | 2,361 | (31 | ) | 2,330 | 10.1 | % | ||||||||||||||||||
Provision for loan losses |
15 | | 15 | (1 | ) | | (1 | ) | ||||||||||||||||||||
Total expenses |
1,579 | (13 | )(2) | 1,566 | 1,702 | (19 | )(7) | 1,683 | 7.5 | % | ||||||||||||||||||
Income before income tax expense |
702 | (167 | ) | 535 | 660 | (12 | ) | 648 | ||||||||||||||||||||
Income tax expense |
207 | (75 | )(3) | 132 | 189 | (16 | )(3) | 173 | ||||||||||||||||||||
Tax-equivalent adjustment |
| 32 | (4) | 32 | | 31 | (4) | 31 | ||||||||||||||||||||
Net income |
$ | 495 | $ | (124 | ) | $ | 371 | $ | 471 | $ | (27 | ) | $ | 444 | ||||||||||||||
Earnings allocated to participating securities |
$ | (3 | ) | $ | 1 | (5) | $ | (2 | ) | $ | (5 | ) | $ | | $ | (5 | ) | |||||||||||
Net income available to common shareholders |
$ | 492 | $ | (123 | ) | $ | 369 | $ | 466 | $ | (27 | ) | $ | 439 | ||||||||||||||
Diluted earnings per common share |
$ | .99 | $ | (.24 | ) | $ | .75 | $ | .93 | $ | (.05 | ) | $ | .88 | 17.3 | % | ||||||||||||
Average diluted common shares outstanding (in thousands) |
498,056 | 498,056 | 498,056 | 500,980 | 500,980 | 500,980 | ||||||||||||||||||||||
Return on common equity |
13.4 | % | (3.4 | ) % | 10.0 | % | 10.5 | % | (0.6 | ) % | 9.9 | % |
(1) | Represents tax-equivalent adjustment of $32 million, not included in reported results, net of $212 million of discount accretion related to former conduit securities. |
(2) | Represents $13 million of merger and integration costs. |
(3) | Represents net tax effect of non-operating adjustments. |
(4) | Represents tax-equivalent adjustment, not included in reported results. |
(5) | Represents effect of the difference between reported and operating-basis earnings on allocation to participating securities. |
(6) | Represents tax-equivalent adjustment of $31 million, not included in reported results, net of $62 million of discount accretion related to former conduit securities. |
(7) | Represents $14 million of merger and integration costs and $5 million of restructuring charges related to a business operations and information technology transformation program. |
STATE STREET CORPORATION
Tier 1 Common Ratio - Reconciliation
As of Period-End
The tier 1 risk-based common, or tier 1 common, ratio is calculated by dividing tier 1 capital, which is calculated in accordance with applicable bank regulatory requirements, less non-common elements, including preferred stock and qualifying trust preferred securities, by total risk-weighted assets, which assets are also calculated in accordance with applicable bank regulatory requirements. The tier 1 common ratio is not required by GAAP or on a recurring basis by bank regulations. However, this ratio has been used by the Federal Reserve in connection with its evaluation of the capital adequacy of certain large U.S. bank holding companies. In addition, management is currently monitoring this ratio, along with the other capital ratios, in evaluating State Streets capital levels and believes that, at this time, the ratio may be of interest to investors.
The table set forth below presents the calculation of State Streets ratio of tier 1 common capital to total risk-weighted assets.
(Dollars in millions) |
March 31, 2011 |
|||||
Tier 1 Capital |
$ | 13,077 | ||||
Less: |
||||||
Trust preferred securities |
950 | |||||
Preferred stock |
500 | |||||
Tier 1 common capital |
C | $ | 11,627 | |||
Total risk-weighted assets |
D | 66,597 | ||||
Ratio of tier 1 common capital to total risk-weighted assets |
C/D | 17.5 | % |
STATE STREET CORPORATION
BASEL III CAPITAL RECONCILIATION
March 31, 2011
The table set forth below presents the calculations of State Streets ratios of tier 1 risk-based, total risk-based, tier 1 common and tier 1 leverage capital, prepared in accordance with current bank regulatory requirements, and the same ratios prepared in accordance with the proposed requirements of Basel III as those proposed requirements are currently understood.
Current Requirements (1) | Basel III Requirements (2) | |||||||||||
(Dollars in millions) |
||||||||||||
Tier 1 capital |
$ | 13,077 | A | $ | 12,412 | |||||||
Less: |
||||||||||||
Trust preferred securities |
950 | 855 | ||||||||||
Preferred stock |
500 | 450 | ||||||||||
Tier 1 common capital |
11,627 | B | 11,107 | |||||||||
Total capital |
14,380 | C | 13,653 | |||||||||
Total risk-weighted assets |
66,597 | D | 108,643 | |||||||||
Adjusted quarterly average assets |
149,824 | E | 197,500 | |||||||||
Tier 1 capital ratio |
19.6% | A/D | 11.4% | |||||||||
Total capital ratio |
21.6% | C/D | 12.6% | |||||||||
Tier 1 common ratio |
17.5% | B/D | 10.2% | |||||||||
Tier 1 leverage ratio |
8.7% | A/E | 6.3% |
(1) | Actual (unaudited) total capital, tier 1 capital and tier 1 leverage ratios were calculated in accordance with currently applicable bank regulatory requirements. Tier 1 common ratio was calculated by dividing (a) tier 1 capital less non-common elements including qualifying perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust preferred securities (tier 1 common capital), by (b) total risk-weighted assets, which were calculated in accordance with currently applicable bank regulatory requirements. |
(2) | For purposes of the calculations in accordance with Basel III (see below), total capital, tier 1 capital and tier 1 leverage ratios and total risk-weighted assets were calculated based on State Streets estimates, based upon published statements of the Basel Committee and the Federal Reserve, of the effects of the requirements under Basel III affecting capital. The tier 1 common ratio is calculated by dividing (a) tier 1 common capital (as described in footnote (1)), but with tier 1 capital calculated in accordance with Basel III by (b) total risk-weighted assets, which are calculated in accordance with Basel III. State Street reports its financial ratios in accordance with the requirements of the Board of Governors of the Federal Reserve System, which has not yet adopted Basel III. There remains considerable uncertainty concerning the timing for adoption and implementation of Basel III by the Federal Reserve. When adopted, the Federal Reserve may implement Basel III with some or more modifications or adjustments. Therefore, State Streets current understanding of Basel III, as reflected in the table above, may be different from the ultimate application of Basel III by the Federal Reserve to State Street. |
| Tier 1 capital used in the calculation of the tier 1 capital and tier 1 leverage ratios decreased by $665 million, as a result of applying estimated Basel III requirements to tier 1 capital of $13.077 billion as of March 31, 2011. Total capital used in the calculation of the total capital ratio decreased by $727 million, as a result of applying estimated Basel III requirements to total capital of $14.380 billion as of March 31, 2011. |
| Tier 1 common capital used in the calculation of the tier 1 common ratio was $11.107 billion, reflecting the adjustments to tier 1 capital described in the first bullet above. Tier 1 common capital used in the calculation is therefore calculated as adjusted tier 1 capital of $12.412 billion less non-common elements of capital, composed of trust preferred securities of $855 million and preferred stock of $450 million as of March 31, 2011, resulting in tier 1 common capital of $11.107 billion. At March 31, 2011, there was no qualifying minority interest in subsidiaries. |
| Total risk-weighted assets used in the calculation of the total capital, tier 1 capital and tier 1 common ratios increased by $42.046 billion as a result of applying estimated Basel III requirements to total risk-weighted assets of $66.597 billion as of March 31, 2011. |
| Consolidated adjusted quarterly average assets used in the calculation of the leverage ratio increased by $47.676 billion as a result of applying estimated Basel III requirements to the actual consolidated adjusted quarterly average assets as of March 31, 2011 of $149.824 billion. |
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