GENERAL

State Street Corporation is a financial holding company headquartered in Boston, Massachusetts. Through its subsidiaries, including its principal bank subsidiary, State Street Bank and Trust Company, which we refer to as State Street Bank, State Street Corporation provides a full range of products and services to meet the needs of institutional investors worldwide. Unless otherwise indicated or unless the context requires otherwise, all references in this Management's Discussion and Analysis to "State Street," "we," "us," "our" or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. All references in this Form 10-Q to the parent company are to State Street Corporation. Our principal banking subsidiary, State Street Bank and Trust Company, is referred to as State Street Bank. At June 30, 2009, we had consolidated total assets of $153.42 billion, consolidated total deposits of $85.58 billion, consolidated total shareholders' equity of $12.10 billion, and employed 26,950.

Our customers include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. Our two lines of business, Investment Servicing and Investment Management, provide products and services including custody, recordkeeping, daily pricing and administration, shareholder services, foreign exchange, brokerage and other trading services, securities finance, deposit and short-term investment facilities, loan and lease financing, investment manager and hedge fund manager operations outsourcing, performance, risk and compliance analytics, investment research and investment management, including passive and active U.S. and non-U.S. equity and fixed-income strategies. We had $16.39 trillion of assets under custody and administration (including $12.34 trillion of assets under custody) and $1.56 trillion of assets under management at June 30, 2009. Information about these assets, and financial information about our business lines, is provided in the "Consolidated Results of Operations-Total Revenue" and "Line of Business Information" sections of this Management's Discussion and Analysis.

This Management's Discussion and Analysis is part of our Quarterly Report on Form 10-Q for the second quarter of 2009 which we filed with the SEC, and updates the Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2008, which we refer to as the 2008 Form 10-K, and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. We previously filed these reports with the SEC. You should read the financial information in this Management's Discussion and Analysis and elsewhere in this Form 10-Q in conjunction with the financial information contained in those reports. Certain previously reported amounts have been reclassified to conform to current period classifications as presented in this Form 10-Q.

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles, which we refer to as GAAP, and which require management to make judgments in the application of its accounting policies that involve significant estimates and assumptions about the effect of matters that are inherently uncertain. Accounting policies considered by management to be relatively more significant in this respect are accounting for the fair value of financial instruments, special purpose entities, and goodwill and other intangible assets. Additional information about these accounting policies is included in the "Significant Accounting Estimates" section of Management's Discussion and Analysis in our 2008 Form 10-K. Although no significant changes were made to these accounting policies during the first six months of 2009, we have provided updated information with respect to our accounting for the fair value of financial instruments in the "Fair Value Measurements" section of this Management's Discussion and Analysis.

Certain financial information provided in this Management's Discussion and Analysis has been prepared on both a GAAP basis and an "operating" basis. Management measures and compares certain financial information

on an operating basis, as it believes this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street's normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of our business, facilitates an investor's understanding and analysis of State Street's underlying financial performance and trends in addition to financial information prepared in accordance with GAAP.

SIGNIFICANT DEVELOPMENTS

In May 2009, we completed a public offering of approximately 58.97 million shares of our common stock at an offering price of $39 per share, and received aggregate net proceeds from the offering of approximately $2.23 billion. In addition, we completed the issuance of $500 million of 4.30% fixed-rate senior notes due 2014. We completed the offerings primarily in connection with our intention to repurchase the $2 billion of equity issued to the U.S. Treasury in October 2008 under the TARP Capital Purchase Program, as well as for general corporate purposes to the extent that the aggregate proceeds exceeded the repurchase. Additional information about the offerings is provided in notes 7 and 10 to the consolidated financial statements included in this Form 10-Q.

In May 2009, we elected to take action that resulted in the consolidation onto our balance sheet, for financial reporting purposes, of the assets and liabilities of the third-party owned, special purpose multi-seller asset-backed commercial paper program, or conduits, that we administer. In connection with the consolidation, we recorded the assets and liabilities of the conduits at their then fair values, and recorded a pre-tax extraordinary loss of approximately $6.10 billion, or approximately $3.68 billion after-tax, in our consolidated statement of income. This loss was primarily related to the recognition of the unrealized mark-to-market losses on the conduits' aggregate assets, which had a book value of approximately $22.7 billion and a fair value of approximately $16.6 billion. In addition to the aggregate assets of $16.6 billion, we added approximately $20.95 billion of aggregate commercial paper issued by the conduits to our consolidated balance sheet.

The difference between the aggregate fair value of the conduits' investment securities and their par value on the date of consolidation created a discount. Based on a detailed security-by-security analysis, we believe that the vast majority of this discount is related to factors other than credit. To the extent that the projected cash flows of the securities exceed their consolidation date book values, the portion of the discount not related to credit will be accreted into net interest revenue over the securities' remaining lives. Subsequent to the consolidation, we recorded accretion of approximately $112 million in net interest revenue for the second quarter of 2009 in our consolidated statement of income.

Additional information about the conduit consolidation is provided in note 9 to the consolidated financial statements included in this Form 10-Q.

In June 2009, we repurchased the preferred stock portion of Treasury's equity investment by redeeming all of the outstanding shares of the preferred stock at its aggregate liquidation amount plus accrued dividends, or approximately $2 billion. The excess of the aggregate liquidation amount over the $1.89 billion carrying value of the preferred stock, which totaled approximately $106 million, was recorded as a reduction of retained earnings, and thus affected earnings available to common shareholders for the second quarter and first six months of 2009. In July 2009, we repurchased the warrant to purchase shares of our common stock originally issued to Treasury as part of its equity investment at its fair value of $60 million. The repurchase reduced shareholders' equity, but will not affect our earnings available to common shareholders, since it was recorded as a reduction of surplus. Additional information about these transactions is provided in note 10 to the consolidated financial statements included in this Form 10-Q.

Effective April 1, 2009, we adopted the provisions of FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The FSP generally requires that the credit-related portion of other-than-temporary impairment losses recognized during the period for certain debt securities be reflected in results of operations, and that the portion of the losses related to factors other than credit be recognized as a component of other comprehensive income in the balance sheet. Previous guidance required impairment losses not related to credit to be recognized in results of operations.

For the second quarter and first six months of 2009, we identified certain securities that we considered to be other-than-temporarily impaired. The resulting pre-tax losses, defined as the gross difference between the fair value and book value of these securities, were $167 million and $180 million, respectively. Our application of the provisions of the FSP resulted in the identification of $103 million of these pre-tax losses as related to factors other than credit, and these losses remained in other comprehensive income as of June 30, 2009. These losses are netted against the aforementioned gross other-than-temporary impairment losses, and the net losses are presented in our consolidated statement of income. Disclosure of other-than-temporary impairment losses, both related and not related to credit, is provided in note 2 to the consolidated financial statements included in this Form 10-Q.

FORWARD-LOOKING STATEMENTS

This Form 10-Q, particularly this Management's Discussion and Analysis, contains statements that are considered "forward-looking" within the meaning of U.S. securities laws, including statements about industry trends, management's future expectations and other matters that do not relate strictly to historical facts, are based on assumptions by management, and are often identified by such forward-looking terminology as "expect," "look," "believe," "anticipate," "estimate," "seek," "may," "will," "trend," "target" and "goal," or similar statements or variations of such terms. Forward-looking statements may include, among other things, statements about State Street's confidence in its strategies and its expectations about its financial performance, market growth, acquisitions and divestitures, new technologies, services and opportunities, the outcome of legal proceedings and its earnings.

Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management's expectations and assumptions at the time the statements are made, and are not guarantees of future results. Management's expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, the equity, debt, currency and other financial markets, as well as factors specific to State Street and its subsidiaries, including State Street Bank. Factors that could cause changes in the expectations or assumptions on which forward-looking statements are based include, but are not limited to:

• global financial market disruptions and the current worldwide economic recession, and monetary and other governmental actions designed to address such disruptions and recession in the U.S. and internationally;

• increases in the potential volatility of our net interest revenue, changes in the composition of the assets on our consolidated balance sheet and the possibility that we may be required to change the manner in which we fund those assets, principally all as a result of the May 15, 2009 consolidation, for financial reporting purposes, of the asset-backed commercial paper conduits that we administer;

• the financial strength and continuing viability of the counterparties with which we or our customers do business and with which we have investment, credit or financial exposure;

• the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities, and the liquidity requirements of our customers;

• the credit quality, credit agency ratings and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the respective securities and the recognition of an impairment loss;

• the maintenance of credit agency ratings for our debt obligations as well as the level of credibility of credit agency ratings;

• the possibility of our customers incurring substantial losses in investment pools where we act as agent, and the possibility of further general reductions in the valuation of assets;

• our ability to attract deposits and other low-cost, short-term funding;

• potential changes to the competitive environment, including changes due to the effects of consolidation, extensive and changing government regulation and perceptions of State Street as a suitable service provider or counterparty;

• the level and volatility of interest rates and the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally;

• our ability to measure the fair value of the investment securities on our consolidated balance sheet;

• the results of litigation, government investigations and similar disputes and, in particular, the effect of current or potential proceedings concerning State Street Global Advisors', or SSgA's, active fixed-income strategies and other investment products, including the potential for monetary damages and negative consequences for our business and our reputation arising from the previously reported "Wells" notice we received from the SEC;

• the enactment of legislation and changes in regulation and enforcement that impact us and our customers;

• adverse publicity or other reputational harm;

• our ability to pursue acquisitions, strategic alliances and divestures, finance future business acquisitions and obtain regulatory approvals and consents for acquisitions;

• the performance and demand for the products and services we offer, including the level and timing of withdrawals from our collective investment products;

• our ability to continue to grow revenue, attract highly skilled people, control expenses and attract the capital necessary to achieve our business goals and comply with regulatory requirements;

• our ability to control operating risks, information technology systems risks and outsourcing risks, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will fail or be circumvented;

• the potential for new products and services to impose additional costs on us and expose us to increased operational risk, and our ability to protect our intellectual property rights;

• changes in government regulation or new legislation, which may increase our costs, expose us to risk related to compliance or impact our customers;

• changes in accounting standards and practices; and

• changes in tax legislation and in the interpretation of existing tax laws by U.S. and non-U.S. tax authorities that impact the amount of taxes due.

Therefore, actual outcomes and results may differ materially from what is expressed in our forward-looking statements and from our historical financial results due to the factors discussed in this Management's Discussion and Analysis and elsewhere in this Form 10-Q or disclosed in our other SEC filings. Forward-looking statements should not be relied upon as representing our expectations or beliefs as of any time subsequent to the time this Form 10-Q is filed with the SEC. State Street undertakes no obligation to revise the forward-looking statements contained in this Form 10-Q to reflect events after the time it is filed with the SEC. The factors discussed above are not intended to be a complete summary of all risks and uncertainties that may affect our businesses. We cannot anticipate all potential economic, operational and financial developments that may adversely impact our operations and our financial results.

Forward-looking statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate State Street. Any investor in State Street should consider all risks and uncertainties disclosed in our SEC filings, including our filings under the Securities Exchange Act of 1934, in particular our reports on Form 10-K, Form 10-Q and Form 8-K, or registration statements filed under the Securities Act of 1933, all of which are accessible on the SEC's website at www.sec.gov or on our website at www.statestreet.com.

OVERVIEW OF FINANCIAL RESULTS



                                     Quarters Ended June 30,                           Six Months Ended June 30,
(Dollars in millions,
except per share
amounts)                      2009             2008           % Change           2009             2008           % Change
Total fee revenue           $   1,516        $   2,006             (24 )%      $   2,938        $   3,967             (26 )%
Net interest revenue              580              657             (12 )           1,144            1,282             (11 )
Gains (Losses) related
to investment
securities, net                    26                9                                42                -

Total revenue                   2,122            2,672             (21 )           4,124            5,249             (21 )
Provision for loan
losses                             14                -                                98                -
Expenses:
Expenses from
operations                      1,352            1,809             (25 )           2,639            3,557             (26 )
Merger and integration
costs                              12               32             (63 )              29               58             (50 )

Total expenses                  1,364            1,841             (26 )           2,668            3,615             (26 )

Income before income
tax expense and
extraordinary loss                744              831             (10 )           1,358            1,634             (17 )
Income tax expense                242              283                               380              556

Income before
extraordinary loss                502              548              (8 )             978            1,078              (9 )
Extraordinary loss, net
of taxes                       (3,684 )              -                            (3,684 )              -

Net income (loss)           $  (3,182 )      $     548                         $  (2,706 )      $   1,078

Adjustments to net
income (loss)(1)                 (132 )              -                              (163 )              -

Net income before
extraordinary loss
available to common
shareholders                $     370        $     548             (32 )       $     815        $   1,078             (24 )

Net income (loss)
available to common
shareholders                $  (3,314 )      $     548                         $  (2,869 )      $   1,078

Earnings per common
share before
extraordinary loss:
Basic                       $     .80        $    1.36                         $    1.82        $    2.72
Diluted                           .79             1.35                              1.81             2.70
Earnings (loss) per
common share:
Basic                       $   (7.16 )      $    1.36                         $   (6.40 )      $    2.72
Diluted                         (7.12 )           1.35                             (6.37 )           2.70
Average common shares
outstanding
(in thousands):
Basic                         462,399          402,482                           447,370          395,212
Diluted                       465,814          406,964                           450,483          399,684
Cash dividends declared           .01              .24                               .02              .47
Return on common
shareholders' equity(2)          13.0 %           18.6 %                            14.4 %           18.6 %

(1) Adjustments are described in note 17 to the consolidated financial statements included in this Form 10-Q.

(2) For the quarter and six months ended June 30, 2009, return on common shareholders' equity was determined by dividing annualized net income before extraordinary loss available to common shareholders by average common shareholders' equity for the period.

Financial Highlights

For the second quarter of 2009, we recorded a net loss available to common shareholders of $3.31 billion, or $7.12 per diluted common share, which included an after-tax extraordinary loss of $3.68 billion, or $7.91 per diluted common share, related to the previously reported consolidation, for financial reporting purposes, of the asset-backed commercial paper conduits that we administer onto our balance sheet in May 2009. Including the extraordinary loss, the net loss available to common shareholders was $2.87 billion, or $6.37 per diluted common share, for the six months ended June 30, 2009.

Before the after-tax extraordinary loss of $3.68 billion, net income available to common shareholders was $370 million, or $.79 per diluted common share, for the second quarter of 2009, compared to $548 million, or $1.35 per diluted share, for the second quarter of 2008. Net income before the extraordinary loss was $815 million and diluted earnings per share were $1.81 for the first six months of 2009, compared to $1.08 billion and $2.70 for the first six months of 2008. Return on common shareholders' equity (before the extraordinary loss for the 2009 periods) was 13.0% compared to 18.6% for the second quarter of 2008, and 14.4% compared to 18.6% for the first six months of 2008.

Total revenue for the second quarter of 2009 decreased 21% compared to the second quarter of 2008, with total fee revenue down 24%. Generally, all fee revenue types were down compared to the prior-year quarter, reflecting the impact of the ongoing instability in the global financial markets. Servicing fee and management fee revenue were down 19% and 31%, respectively, from the year-ago quarter, compared to generally greater declines in equity market valuations over the same period as measured by the published indices presented in the "INDEX" table in this Management's Discussion and Analysis on page 11. Trading services revenue decreased primarily as a result of lower trading volumes, partially offset by higher levels of volatility. Securities finance revenue decreased compared to the second quarter of 2008 primarily from lower lending volumes reflective of lower asset values and lower demand.

Net interest revenue decreased 12% for the second quarter of 2009 compared to the prior-year second quarter, or 11% on a fully taxable-equivalent basis ($611 million compared to $685 million, reflecting tax-equivalent adjustments of $31 million and $28 million, respectively), with a related decrease in net interest margin of 38 basis points. The decline was generally the result of decreases in interest-bearing deposit volumes and interest rate spreads, reflecting relatively more stable financial markets compared to 2008, as well as the impact of our more conservative re-investment strategy during 2009 with respect to our investment securities portfolio, partly offset by the discount accretion related to the conduit assets consolidated in May 2009. This investment strategy, which is an element of our previously disclosed plan to improve our tangible common equity, includes the investment of excess cash in short-term money market instruments, including interest-bearing deposits at the Federal reserve and other central banks in excess of minimum reserve requirements, in light of the ongoing instability in the global financial markets and to increase our overall liquidity.

We recorded a provision for loan losses of $98 million during the first six months of 2009, of which $14 million was recorded in the second quarter, related to commercial real estate loans purchased in 2008 from certain customers pursuant to indemnified repurchase agreements. The provision reflected management's revised expectation of future principal and interest cash flows with respect to certain of these loans. Management's change in expectation resulted primarily from its assessment of the impact of deteriorating economic conditions in the commercial real estate markets on certain of these loans during the first half of 2009.

Total expenses decreased 26% to $1.36 billion for the second quarter of 2009 compared to the 2008 quarter, primarily the result of a 34% reduction in salaries and benefits expense. This decrease was mainly attributable to

lower accruals of incentive compensation in 2009, as well as the impact of our previously announced reduction in force. The decrease in total expenses also reflected the impact of lower transaction processing expenses and lower professional fees. Expenses for the second quarter of 2009 included $12 million of merger and integration costs associated with the 2007 acquisition of Investors Financial, compared to $32 million for the second quarter of 2008.

With the decline in total expenses exceeding the decline in total revenue for . . .