State Street Corp. on Monday announced plans to sell more than $1 billion in stock and notes as the money manager cut its 2009 forecast and said it recorded a $3.7 billion loss 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 State Street consolidating the conduits onto the company's balance sheet. Based on prepayment assumptions, the assets should generate some $475 million in pretax interest revenue this year.
The move slashed the capital levels for State Street, prompting the stock and note sale. The company said its ratio for tangible common equity, which measures how much of a bank's hard assets its common shareholders actually own, would have fallen from 5.9% to 2.2% as of March 31 because of the ABCP move. With the stock offering — with an assumed $1.45 billion in proceeds — that lowered rate would be boosted to 3.4%.
The company didn't disclose how much in stock or notes it planned to sell other than using the $1.45 billion figure for as an estimate on how its tangible common equity would be boosted by a sale. State Street's market capitalization is about $17 billion. Its shares fell 4% premarket to $36.99.
In light of the conduit move 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 ABCP loss but includes the resulting interest revenue that is expected to be offset by the offerings' impact and the possible re-establishment of incentive compensation.
The company last month projected revenue falling 8% to 12% and per-share earnings dropping 12% to 16% from last year's $5.21 a share.
State Street wasn't told it needed to raise capital levels by the Treasury following the government's recent stress tests. The company reiterated Monday it plans to repay the $2 billion capital infusion it received last fall as soon as possible.