State Street Profit Falls, Lowers 2008 Outlook
Financial services companyState Street Tuesday said net income fell 28 percent in the fourth quarter as the company took a $279 million charge to settle lawsuits tied to losses on mortgage market investments.
The company also delivered a cautious outlook for 2008, saying it expects earnings and revenue growth to be at the lower end of its target ranges.
Boston-based State Street, the world's biggest institutional asset manager, said net income was $223 million, or 57 cents per share, down from $309 million, or 91 cents, a year earlier.
On an operating basis, earnings rose to $1.38 per share from 86 cents a year earlier. Analysts polled by Reuters had forecast $1.38 per share.
The net figure includes an after-tax charge of $279 million, or 71 cents per share, to cover costs for lawsuits that relate to underperformance at a number of fixed income funds that were exposed to sub-prime investments.
The company announced the charge earlier this month when it also said that the head of its money management unit, State Street Global Advisors, had resigned.
The company also took a $38 million charge for integration costs after it bought cross-town rival Investors Financial Services.
Revenue surged 53 percent to $2.4 billion. Assets under management stood at $1.98 trillion, a smidgen less than the $2.0 trillion the company recorded at the end of September.
Custody assets climbed to $15.3 trillion from $15.15 trillion at the end of the third quarter.
For the full year, State Street reported earnings of $4.57 per share, the top of its expected range.
But for 2008, State Street Chairman and Chief Executive Officer Ron Logue presented a more muted forecast.
"We expect earnings-per-share growth of 10 percent to 15 percent and return on equity of 14 percent to 17 percent, both on an operating basis. Our 2008 target is to achieve near the lower end of these ranges," he said in a statement.
State Street has said it will defend itself vigorously against the lawsuits related to the mortgage market investents. It currently faces at least three suits.
Management fees at SSGA rose 17 percent to $297 million in the quarter.
State Street shares fell $3.20, or 3.77 percent, to $81.68 in early New York Stock Exchange trading.