State Street to sell stock, takes $3.7 billion charge

NEW YORK (Reuters) - State Street Corp said on Monday it plans to sell $1.5 billion of stock and also plans a note sale to help repay government bailout funds, and took a $3.7 billion charge as it moved some assets onto its balance sheet at a loss.

The charge relates to unrealized losses on $22.7 billion of assets from asset-backed commercial paper conduits, a special purpose vehicle that holds receivables.

These losses have been a drag on shares of State Street, which have lost close to half their value since July. The Boston-based custodial bank and asset manager in February slashed its dividend and reduced bonuses to bolster capital.

In premarket trading, State Street shares fell about 2 percent to $37.75. Their 52-week high is $74.85, set last July 23.

State Street said it will use proceeds from the sale of shares and notes to help repay a $2 billion infusion from the Troubled Asset Relief Program.

The company did not specify the size of the debt offering but said it would not be backed by the federal government -- a requirement for paying back TARP.

Many TARP recipients want to repay the funds because of restrictions imposed by the government, including on executive pay, and because holding the funds is viewed as a sign of weakness.

State Street was among 19 large U.S. banks to undergo government "stress tests" of their ability to handle a deep recession, and was among nine found not to need more capital.

The company on Monday projected 2009 operating profit that would be below the average analyst forecast, reflecting a "marginally weaker" environment than expected.

State Street now expects 2009 operating profit of $4.25 to $4.50 per share, including 75 cents per share from interest revenue from the conduit assets.

Excluding the boost from interest revenue, the forecast is below analysts' average estimate of $3.80 per share, according to Reuters Estimates.

State Street forecast operating revenue down 12 percent and a return on equity of about 17 percent.

It said it expects to eventually recognize the "vast majority" of the $3.7 billion charge -- equivalent to $6.1 billion before taxes -- as interest revenue over time, including $475 million before taxes in 2009.

Custodial banks keep records and provide accounting and other back-offices services to institutional investors.

Goldman Sachs & Co and Morgan Stanley are arranging the stock offering.

(Reporting by Jonathan Stempel; Editing by Lisa Von Ahn and John Wallace)

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