The Wall Street Journal-20080116-Credit Crunch- Subprime Provisions Damp State Street-s Earnings
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Credit Crunch: Subprime Provisions Damp State Street's Earnings
State Street Corp.'s fourth-quarter net income fell 28% as the company built up a legal reserve in an attempt to move past subprime woes at its troubled asset-management unit. The company also gave a cautious 2008 outlook.
The Boston-based financial company said results included a $279 million, or 71-cents-a-share, charge to cover the impact of a $618 million legal reserve. The company also recorded $38 million in merger costs. Year-earlier results included an $18 million tax charge.
Excluding special items, earnings would have risen to $1.38 a share from $1.15.
Revenue rose 53% to $2.48 billion amid acquisitions. The mean per- share-earnings estimate of analysts polled by Thomson Financial was $1.35 on revenue of $2.39 billion.
The company's return on equity, an important measure of profitability, on an operating basis rose to 18.7% from 15.9% a year earlier.
"Nearly every revenue item on our income statement increased in double digits this year," Chief Executive Ronald Logue said in a statement. Mr. Logue added that he hopes establishing the legal reserve will "address customer concerns" about its State Street Global Advisors investment arm and put the unit's troubles behind it.
The segment's CEO stepped down earlier this month amid legal turmoil and calls for change from investors, who lost money on investments the unit plowed into subprime debt to increase returns.
