State Street Corporation has commenced a public offering of its common stock and plans to commence a separate public offering of non-guaranteed senior notes in the near term.
State Street Corporation has commenced a public offering of its common stock and plans to commence a separate public offering of non-guaranteed senior notes in the near term.
The notes will not be guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program. Both offerings will be conducted as public offerings pursuant to an effective registration statement under the Securities Act of 1933. Neither offering is conditioned upon completion of the other.
Goldman Sachs and Morgan Stanley are acting as joint book-running managers for the offerings.
Subject to consultation with its banking regulators, State Street plans to notify the US Treasury of its intention to repurchase the US Treasury’s preferred stock and common stock purchase warrant investment in State Street under the TARP Capital Purchase Program. If permitted to do so, the company expects to repurchase the preferred stock and warrant with proceeds of these offerings. State Street intends to use offering proceeds not used for this repurchase for general corporate purposes.
State Street also elected to take action, effective on 15 May 2009, which resulted in consolidation onto its balance sheet of the asset-backed commercial paper conduits it administers. The analysis conducted under the Federal Reserve’s Supervisory Capital Assessment Program (SCAP), in evaluating State Street’s capital position, assumed consolidation of these conduits onto State Street’s balance sheet during 2009. The Federal Reserve concluded that, after consolidation of the conduits and under the assumptions and methodology required by SCAP, State Street had a sufficient capital buffer to withstand even the stress test’s ‘more adverse’ scenario.
In connection with the consolidation of the conduits, State Street recorded for accounting purposes an after-tax loss of approximately USD3.7bn relating to the recognition of the unrealized mark-to-market losses on the conduit assets. From the conduits, assets with an aggregate book value of approximately USD22.7bn as of 15 May 2009 were consolidated onto the company’s balance sheet at a fair value of approximately USD16.6bn as of that date.
Based on its credit assessment of these assets, State Street expects that a vast majority of the after-tax loss recorded upon consolidation will accrete as interest revenue over the lives of the assets into the consolidated income statement. Based upon management’s current prepayment assumptions, State Street expects approximately USD475m pre-tax to accrete as interest revenue in 2009.
After giving effect to the consolidation of the conduits and assuming the issuance of common stock and senior notes in the offerings, State Street estimates that operating earnings per share for 2009 will be in a range from USD4.25 to USD4.50. Operating revenues for 2009 are expected to decline by approximately 12 per cent relative to 2008. After consolidation, return on equity for 2009 is expected to be approximately 17 per cent.
