State Street shares plummet on 2009 outlook
NEW YORK -- State Street Corp. shares dove to a 13-year low on Tuesday after the commercial bank reported a 71 percent drop in fourth-quarter earnings and warned of a difficult year ahead.
Shares plunged more than 50 percent, dropping $18.46 to $17.89 in morning trading. Shares fell as low as $16.30 earlier in the session, a low not seen since 1996.
Though the bank achieved double-digit growth in both income and revenue in 2008, State Street said it expects 2009 results to fall flat. That's down from a long-term goal of 8 percent to 12 percent revenue growth, and 10 percent to 15 percent earnings growth. The company also expects net interest revenue to fall flat this year.
"While we expect 2009 to present industrywide challenges, we believe that the revenue drivers we have identified and the expense controls we have in place, will allow us to meet (these) financial goals," said Ronald E. Logue, chairman and chief executive, in a statement.
On a call with analysts, Logue asserted the bank has determined not to raise equity capital. He said wages will be frozen in 2009 as a cost-cutting measure, and the company will evaluate its dividend in the first quarter.
For the final period of 2008, the company earned $65 million, or 15 cents per share, compared with $223 million, or 57 cents per share, in the year-ago quarter. Excluding certain one-time items, the company reported operating income of $511 million, or $1.18 per share, down from $540 million, or $1.38 per share, in the prior-year period.
Analysts polled by Thomson Reuters, on average, were expecting fourth-quarter earnings of $1.14 per share. Analyst estimates typically don't factor in one-time items.
Total revenue for the quarter rose 7 percent to $2.67 billion from $2.48 billion, as total net interest revenue rose 52 percent to $843 million from $556 million. Fee revenue slipped 2 percent to $1.88 billion from $1.93 billion.
But results were hurt by $51 million in investment losses during the quarter -- compared with a loss of just $4 million in the fourth quarter of 2007. Additionally, expenses rose 19 percent to $2.59 billion.
For the year, State Street reported net income after paying preferred dividends of $1.62 billion, or $3.89 per share, a 29 percent increase over net income of $1.26 billion, or $3.45 per share, in 2007. On an adjusted basis, the company reported earnings of $2.17 billion, or $5.21 per share -- narrowly beating analysts' forecast of $5.18 per share.
Total net interest revenue increased 53 percent to $2.65 billion, while total revenue rose 28 percent to $10.69 billion.
State Street was one of the initial banks to receive government funds under the $700 billion financial bailout package. The bank received a preferred stock investment of $2 billion last fall.