State Street said it has consolidated onto its balance sheet the ABCP conduits it administers following the analysis under the Federal Reserves Supervisory Capital Assessment Program (SCAP).
The evaluation found that, after consolidation of the conduits and under the assumptions and methodology required by SCAP, State Street had a sufficient capital buffer to withstand even the stress tests more adverse scenario.
In terms of the consolidation of the conduits, State Street recorded for accounting purposes an after-tax loss of around $3.7 billion relating to the recognition of the unrealized mark-to-market losses on the conduit assets. From the conduits, assets with an aggregate book value of approximately $22.7 billion as of May 15 were consolidated onto the companys balance sheet at a fair value of approximately $16.6 billion as of that date.
Based on its credit assessment of these assets, State Street expects that a vast majority of the after-tax loss recorded upon consolidation will accrete as interest revenue over the lives of the assets into the consolidated income statement. Based upon managements current prepayment assumptions, State Street expects approximately $475 million pre-tax to accrete as interest revenue in 2009.
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 move to bring back its ABCP on its balance sheet.
As a result, the company announced a $2 billion stock offering that has boosted the rate to 3.4%. 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%.