STATE Street, one of the world’s biggest institutional investors, said yesterday that it would post a fourth-quarter loss after it sold $11bn (£7bn) in securities to meet new regulatory requirements.
The sales are the latest move by a new chief executive to refocus State Street on core operations such as custodial services, after the company was hard hit by the financial crisis.
State Street said it would post a net loss of $350m for the fourth quarter, but operating earnings are still expected to top its results from a year earlier.
The bank, which manages $2 trillion and has about $20 trillion in assets under custody, sold the mortgage-backed and asset-backed securities after regulators agreed on rules that will require large banks to have a bigger cushion of reserves in order to prevent another financial crisis.
State Street said the sales will increase its balance sheet flexibility in deploying its capital, shore up its capital ratios under evolving regulatory capital standards, and reduce its exposure to certain asset classes.
Since the financial crisis, State Street has tried to return to its historically more conservative roots. It cut costs through heavy layoffs and slashing the dividend. Earlier this year it appointed a new chief executive, Joseph Hooley, and recently it surprised analysts by announcing still more layoffs – another 1,400 positions are expected to go.
In an interview, RBC Capital Markets analyst Gerard Cassidy said he would cut his estimate for State Street’s 2011 earnings by about 20 cents a share – from the current $3.90 – because the securities sales will mean lower income on State Street’s bond portfolio.
Still, Cassidy said the sales were a good move because they make the bank less dependent on riskier assets.
State Street’s shares closed one per cent lower yesterday at $45.74.