State Street sells $6.6 billion in mortgage-backed securities
State Street (STT) sold about $11 billion of asset-backed securities, $6.6 billion of which is mortgage-backed, as the institutional investment giant actively repositions its portfolio. The company plans to incur fourth-quarter charges of about $350 million from the sale and continues to expect earnings for 2010 to slightly top the year earlier. The sale includes $4.1 billion of non-agency mortgage-backed securities, $3.7 billion of non-agency asset-backed securities, $2.5 billion of foreign MBS, and $600 million of foreign ABS. State Street said it anticipates "the discount accretion from the remaining securities will aggregate" about $1.3 billion, down from a prior estimate of $3.6 billion. The company expects shedding the securities to increase balance sheet flexibility and "enhance capital ratios under evolving regulatory capital standards," while reducing exposure to specific asset classes. State Street projects the sale to lower its 2011 net interest margin by 5 to 10 basis points "from the level that may have been achieved had the transaction not occurred." In September, the Basel Committee on Banking Supervision announced reforms to global-banking standards that increase the minimum common-equity requirement to 4.5% from 2% and order banks hold a capital-conservation buffer of 2.5%, as well. With this sale and the repositioning of its portfolio, State Street's Tier 1 capital ratio will be 10.1%, above the 7% mandated by Basel 3. State Street didn't disclose the purchasers of the securities, but Bloomberg is reporting Goldman Sachs (GS) plans to begin offering $6 billion of mortgages it acquired from the Boston-based institutional investor. Write to Jason Philyaw.