State Street Reports Q2 Earnings Per Share of 87 Cents, Down From 99 Cents in Q1

Drop in earnings due to $414 million pre-tax securities lending charge

State Street Corp. on Tuesday, July 20, reported second-quarter 2010 earnings of 87 cents, down 12 cents from 99 cents in the first quarter of 2010, due primarily to a securities lending charge. However, profits stood at $432 million compared with a loss of $3.31 billion, or $7.12 a share, last year.

The second-quarter earnings report also showed an increase of 10% compared to $0.79 in the second quarter of 2009 before the conduit-related extraordinary loss. Revenue in the second quarter of 2010 was $2.304 billion, up 9% from $2.122 billion in the second quarter of 2009.

Expenses of $1.944 billion in the second quarter increased from $1.364 billion in the second quarter of 2009 due primarily to the securities lending charge. Return on shareholders' equity was 11.0%, down from 13.0%, before the extraordinary loss, in the second quarter of 2009.

The Boston-based custodial bank reported in a release that second-quarter 2010 GAAP-basis results included a pre-tax charge of $414 million, or $251 million after tax, separately announced on July 7, related to certain common and collective trust funds managed by State Street Global Advisors that engage in securities lending, and the agency lending program.

GAAP-basis results for the period also included merger and integration costs of $41 million, primarily associated with the acquisitions of Intesa Sanpaolo's securities services business and Mourant International Finance Administration.

"I am pleased with the clear signs that our business in the second quarter strengthened compared with the first quarter and overall confirmed our full-year outlook for 2010," said Joseph L. Hooley, State Street President and CEO Joseph Hooley in a release. "The 10% increase in total fee revenue demonstrates momentum in our servicing fees as well as the strength in our trading businesses, including foreign exchange, electronic trading and transition management."

In the quarter, Hooley noted, State Street added $1.11 trillion in assets to be serviced, including $686 billion from Intesa Sanpaolo's Securities Services business and Mourant. Capital levels remain strong and are well in excess of the regulatory "well capitalized" requirements, he said. On an operating basis, State Street achieved 850 basis points of positive operating leverage compared to the first quarter of 2010, Hooley added.

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