State Street will lower the 2009 dividend to $.01 per share, as part of a broader plan to bolster its balance sheet and improve its tangible common equity ratio.
For 2008, GAAP earnings per share of $4.30 are up from the previously announced $3.89 per share. Return on common shareholders’ equity in 2008 is 14.8%, up from the previously announced 13.4%. For the fourth quarter of 2008, earnings are $0.54 per share, up from the previously announced $0.15 per share. Return on common shareholders’ equity is 8.4% in the fourth quarter of 2008, up from the previously announced 2.3%. Operating expenses for full year and fourth quarter 2008, were $6.780 billion and $1.528 billion, respectively, down from the previously announced operating expenses for those periods of $7.058 billion and $1.806 billion, respectively. These expenses reflect the reduced compensation in each period. Revenue for the full year and fourth quarter 2008 of $10.693 billion and $2.673 billion, respectively, are unchanged from the amounts previously announced.
“State Street has among the highest regulatory capital ratios in the industry; however, we are implementing a plan to alleviate investor concerns about our pro forma TCE ratio, if we were to consolidate the asset-backed commercial paper conduits that we administer. These are extraordinary times that require swift action. Given that we are asking our shareholders to make sacrifices through dividend reductions, we believe that we must also be willing to make our own sacrifices and therefore, we have eliminated the 2008 incentive compensation for the five named executive officers and reduced it by approximately 50% for the remainder of the company,” says Ronald E. Logue, State Street’s chairman and chief executive officer.
Logue added, “While our tangible common equity ratio will vary with the impact of the fixed-income markets on our investment portfolio and the conduit assets and our actual results, we currently anticipate that the steps we are announcing will result in a meaningful increase in our tangible common equity ratio during the first quarter and the full year. As of January 30, 2009, our unrealized after-tax loss on our investment portfolio has improved $730 million, from $6.3 billion at December 31, 2008 to $5.6 billion. Also, the unrealized loss in our conduit assets has improved modestly.”
Logue concluded, “We are adjusting our outlook for 2009 based on several new factors: a more conservative reinvestment plan affecting assets paying down and maturing in our investment portfolio; we now expect the S & P 500 to average about 900 for the year down from our previous estimate of 1000; and we intend to further restrain expenses in 2009. As a result, we now expect our operating revenue to decline 8% to 12% from record levels in 2008; our operating earnings per share to decline 12% to 16% from the updated record level of $5.61 per share in 2008; and our return on common equity to approach the low end of our 14% to 17% long-term range. At our meeting with investors and analysts later today, we will provide further detail about our TCE improvement plan and our 2009 outlook.”
Management presents results on an operating basis in order to provide financial information that is comparable from period to period and to present comparable financial trends with respect to our ongoing business operations. A full reconciliation of operating-basis results to U.S. generally accepted accounting principals (GAAP) is included in the addendum at the end of this press release. The following financial results are presented on an operating basis, and are updated from our previously announced operating results to reflect the effects of the reduced compensation in the full year and fourth quarter 2008 and to otherwise reflect the same adjustments between GAAP and operating, as were previously announced.
For 2008, updated operating-basis earnings per share of $5.61 are up from the previously announced $5.21 per share. Operating-basis return on common shareholders’ equity is 19.3%, up from the previously announced 17.9%. In the fourth quarter of 2008, operating-basis earnings are $1.58 per share, up from the previously announced $1.18 per share. Operating-basis return on common shareholders’ equity in the fourth quarter of 2008 is 24.3%, up from the previously announced 18.3%. As noted above, these results reflect the reduced salaries and employee benefits expense in each period. Operating-basis revenue for the full year and fourth quarter 2008 of $10.477 billion and $2.641 billion, respectively, are unchanged from the amounts previously announced.
The reduction in expenses results in an increase to State Street Corporation’s Tier-1 capital ratio to 20.74% at December 31, 2008 from the previously announced 20.49% and an increase to the leverage ratio to 7.83% from the previously announced 7.74%. The TCE ratio at December 31, 2008, is 4.61%. The pro forma TCE ratio, including consolidation of all assets and liabilities of the State Street-administered asset-backed commercial paper conduits, was 1.19% as of December 31, 2008. Assuming market prices remain constant from January through the rest of 2009 and we execute on our plan, we expect TCE to be approximately 4.91% by the end of 2009.