State Street Succumbs

State Street Corp. (STT) shares lost half their value on Tuesday after the world’s largest institutional money manager reported a 71% drop in quarterly income. The company is suffering from unrealized bond losses and said it had already reviewed the possibility of raising capital.

In its fourth quarter, the parent of State Street Global Advisors’ net income fell to $65 million, or 15 cents a share, from $223 million, or 57 cents, a year ago, as the volatile stock and bond markets eroded the value of customer assets. State Street also booked a $450 million charge for supporting some high-value funds. Excluding items, quarterly income was $1.18 per share, down from $1.38, last year.

Unrealized investment portfolio and commercial paper losses nearly doubled to $10 billion in the quarter. The company also pared down its financial guidance to forecast flat results for the current year. State Street booked a profit of $5.21 per share in fiscal 2008. Revenue is also expected to remain unchanged, falling short of the company’s target of a 8% to 12% growth. Chief Executive Ron Logue said unrealized losses will continue to be a concern.

While State Street has largely remained immune to the credit crisis, speculation that it might soon need to raise capital to write off huge unrealized portfolio losses weighed on rival custodian company stocks as well. Bank of New York Mellon Corp. (BK) lost nearly 25% at noon to trade at $17.38, Legg Mason Inc. (LM) fell nearly 13% to $18.39 on the New York Stock Exchange.

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