State Street drops 71%, missing expectations

State Street Corp. today reported a 71% profit drop in fourth-quarter earnings, along with increased unrealized losses in its commercial paper program and investment portfolio.
JAN 20, 2009
State Street Corp. today reported a 71% profit drop in fourth-quarter earnings, along with increased unrealized losses in its commercial paper program and investment portfolio. The Boston-based money manager’s fourth-quarter net income was $65 million, or 15 cents per share, down from $223 million, or 57 cents per share, in the year-ago period. Earnings per share fell well short of analysts' expectations, which ranged from a high of $1.28 to a low of $1.04, and significantly trailed the year-earlier fourth-quarter results of $1.38 a share. Shares of State Street tumbled 49.8% to $18.25 in mid-morning trading on the New York Stock Exchange as the company released details about its disappointing quarter. The steep profit drop was attributed to $450 million in charges needed to shore up certain stable value funds it manages and restructuring charges of $306 million primarily associated with a planned reduction in work force. The cuts were announced last month. After-tax unrealized mark-to-market losses in State Street’s investment portfolio increased from $3 billion to $6.3 billion from the third quarter to the fourth quarter. Unrealized losses in State Street’s asset-backed commercial paper program rose from $1.4 billion to $3.6 billion from the end of the third quarter. Assets under management at the end of the fourth quarter dipped 27% from the year-ago period, to $1.44 trillion. In a conference call with analysts, State Street chairman and chief executive Ronald Logue declined to discuss whether the company would seek a merger or other efforts to boost the stock price, which he said significantly undervalues the company. He also said State Street is working closely with regulators to ensure that it is meeting all relevant capital standards.

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