BOSTON (Reuters) - State Street Corp (NYSE:STT - News), the world's largest money manager for institutions, said quarterly earnings fell sharply and unrealized losses jumped in its commercial paper program and investment portfolio, sending its shares tumbling 50 percent.
"These results were very disappointing," RBC Capital analyst Gerard Cassidy said, adding that investors were clearly "spooked" by the higher unrealized losses and the company's weak outlook for 2009.
Investors have long worried about State Street's growing unrealized losses and whether the company would have to write them off.
State Street Chief Executive Ron Logue said on a conference call the unrealized losses "continue to concern us" but they improved slightly in recent weeks.
Worrying investors even further was the company's outlook for 2009. It said revenue is expected to be flat with 2008's record results, falling short of the company's long-term goal of 8 percent to 12 percent growth. Operating earnings are also expected to be flat, below the long-term goal of 10 percent to 15 percent growth.
Net income in the fourth quarter was $65 million, or 15 cents per share, down from $223 million, or 57 cents per share, a year earlier. The numbers include expenses to cut its workforce and prop up ailing funds.
On an operating basis, earnings were $511 million, or $1.18 per share, down from $540 million, or $1.38 per share, a year earlier.
The company said after-tax, unrealized mark-to-market losses in its investment portfolio rose $3.0 billion during the quarter to $6.3 billion.
Unrealized losses in its asset-backed commercial paper program increased $1.4 billion to $3.6 billion.
As of January 16, unrealized after-tax losses in the investment portfolio had narrowed to $5.9 billion, the company said.
In a regulatory filing on January 20, the company said it would take a charge to earnings if unrealized losses are determined to be other-than-temporarily-impaired. In the fourth quarter it recognized a charge of $78 million as a result of other-than-temporary impairment.
State Street said that if a future charge were significant, "a rating agency might downgrade our credit rating or put us on credit watch."
State Street shares were down $18.44 to $17.91 in early trading on the New York Stock Exchange.
Quarterly revenue rose to $2.7 billion from $2.5 billion a year earlier.
Assets under management stood at $1.44 trillion at the end of the quarter, down 27 percent from a year earlier. Custody assets stood at $12.04 trillion, down 21 percent.
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