State Street Corp
The sales are the latest move by a new chief executive to refocus State Street on core operations such as custodial services, after the company was hard hit by the financial crisis.
State Street said it would post a net loss of $350 million for the fourth quarter, but operating earnings are still expected to top year-earlier results.
The bank, which manages $2 trillion and has about $20 trillion in assets under custody, sold the mortgage-backed and asset-backed securities after regulators agreed on rules that will require large banks to have a bigger cushion of reserves in order to prevent another financial crisis.
Investors reacted to the news by sending State Street shares lower on expectations the securities sales will reduce its profit in 2011. The shares were down 3.6 percent to $44.52 in late-morning trading.
State Street said the sales will increase its balance sheet flexibility in deploying its capital, shore up its capital ratios under evolving regulatory capital standards, and reduce its exposure to certain asset classes.
Since the financial crisis, State Street has tried to return to its historically more conservative roots. It cut costs through heavy layoffs and slashing the dividend. Earlier this year it appointed a new chief executive, Joseph Hooley, and recently it surprised analysts by announcing still more layoffs -- another 1,400 positions are expected to go.
In an interview, RBC Capital Markets analyst Gerard Cassidy said he would cut his estimate for State Street's 2011 earnings by about 20 cents a share -- from the current $3.90 -- because the securities sales will mean lower income on State Street's bond portfolio.
Still, Cassidy said the sales were a good move because they make the bank less dependent on riskier assets.
They took on riskier assets, and it blew up on them, Cassidy said. Now, he added, Hooley is de-risking the profitability, which makes sense. They are not a bond manager, they're a custody bank.
State Street previously said the after-tax, unrealized mark-to-market losses in its investment portfolio, which had worried investors in recent years, had shrunk to $281 million in the third quarter, down 72 percent from the second quarter.
(Reporting by Svea Herbst-Bayliss and Ross Kerber; editing by John Wallace)