State Street Corp. announced plans to sell more than $1 billion of stock and notes, cut its full-year earnings forecast and recorded $3.7 billion of full-year losses from asset-backed commercial paper conduits.
The unrealized mark-to-market losses on the assets, which had a book value of $22.7 billion as of Friday, were the result of consolidating the conduits on to the company's balance sheet, State Street said Monday.
According to prepayment assumptions, the assets should generate $475 million of pretax interest revenue this year.
The losses slashed the capital levels for State Street, prompting the stock and note sale.
The Boston company said its tangible common equity ratio, which measures how much of a company's hard assets its common shareholders own, would have fallen from 5.9% to 2.2% as of March 31 as a result of the losses on asset-backed commercial paper if the conduits had been consolidated.
The stock offering — and an assumed $1.45 billion of proceeds — would boost the ratio to 3.4%, State Street said.
It did not disclose how much in stock or notes it planned to sell, other than using the $1.45 billion figure for the expected proceeds. State Street's market capitalization is about $17 billion.
In premarket trading Monday, its shares fell 4%, to $36.99.
In light of the conduit loss and the planned stock-and-note sale, State Street projected 2009 earnings of $4.25 to $4.50 a share, with revenue down 12%. The forecast excludes the losses on asset-backed commercial paper but includes interest revenue generated from the conduits.
Last month State Street projected that revenue would fall 8% to 12% this year, and that earnings per share would dropping 12% to 16% from last year's total of $5.21.
State Street was not told that it needed to raise capital levels by the Treasury Department following the government's recent stress tests. The company reiterated Monday that it plans to repay the $2 billion capital infusion it received last fall as soon as possible.
