State Street Corporation reported 13% EPS growth in 2008 due to the world financial crisis. Stock price falls 59% on the day of the report of earnings. This day decline was exceeded in the previous 12-month period, only one non-bankrupt S & P 500. The company was AIG, Inc which was down 61% on the day Lehman Brothers declared bankruptcy. While State Street was $ 5.0 billion profit for the 4-year period 2005-2008, the company also sustained $ 10.0 million after-tax mark to market losses on its "available for sale" portfolio and investment portfolio of its pipelines. The question is, has been performed by the company for the last four years? Was it earned $ 5.0 billion, or lost $ 5.0 billion? The fair value is the key to the dilemma. As the financial services, measure and report the income in a disorderly and illiquid markets for its main assets? The case is also considered as the management at State Street reacted to the deterioration of their capital ratios generated by the "fair value" accounting.
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by William E. Fruhan Source: Harvard Business School 12 pages. Publication Date: March 23, 2009. Prod. #: 209112-PDF-ENG
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