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State Street Ratings Put on Review for Upgrade by Moody's

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Moody's Investors Service, the rating services arm of Moody's Corporation MCO , placed the long-term ratings of State Street Bank and Trust Company, as well as the A2 senior debt rating and (P)A2 senior shelf rating at State Street Corporation STT , on review for possible upgrade.

Also, State Street Bank and Trust's Aa2 long-term deposit rating, A1 issuer rating, (P)A1 senior unsecured shelf rating, A1 subordinated debt rating and (P)A1 subordinated shelf rating, as well as the bank's Aa2(cr) counterparty risk assessment were also placed on review for probable upgrade.

With State Street's balance sheet composition, including the proportion of unsecured long-term debt in its liability structure, expected to remain relatively stable going forward, each of the ratings being reviewed could move up by one notch, given the lower loss potential.

However, if Moody's concludes that State Street's smaller deposit base and resulting capital structure are unlikely to be durable then the ratings placed on review will be confirmed at their current levels.

The main reason for the possible upgrade is State Street's liability structure, which has positive credit implications under Moody's Advanced Loss Given Failure (LGF) framework, a component of Moody's rating methodology for banks.

The changes made by State Street in its balance sheet comprise both debt issuance as well as the substantial decline of its deposit base in the second half of 2015. This was a result of fees charged by the company on certain client deposits to considerably reduce its balance sheet ahead of Basel III Supplementary Leverage Ratio (SLR) requirements taking effect in 2018.

Moreover, State Street raised the proportion of unsecured long-term debt in its liability structure. Therefore, if the modifications in the company's balance sheet are sustained, it would result in lower loss severities for bank-level creditors as well as senior holding company creditors under LGF.

During its review, Moody's will focus on the sustainability of State Street's smaller balance sheet and the rise in holding company issued debt, which provides loss absorption to bank creditors.

Moody's will take into consideration diverse variables, which are likely to influence the development of State Street's balance sheet, including its regulatory capital requirements and the potential loss of client relationships.

State Street currently holds a Zacks Rank #4 (Sell).

Investors interested in the banking space might like BofI Holding, Inc. BOFI and SVB Financial Group SIVB , both of which sport a Zacks Rank #2 (Buy).

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STATE ST CORP (STT): Free Stock Analysis Report

MOODYS CORP (MCO): Free Stock Analysis Report

SVB FINL GP (SIVB): Free Stock Analysis Report

BOFI HLDG INC (BOFI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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