State Street Corp. (STT) said on Wednesday that it has paid $5.4 million cash to the departing Chief Executive Ronald Logue as part of his incentive compensation for last year. State Street also paid Logue 35,786 units of restricted stock. Half the cash will be in deferred payments to Logue.

Logue had stepped down as Chief Executive on March 1, 2010. But he remains non-executive Chairman of State Street’s board. Logue will continue to serve as non-executive Chairman until Jan 1, 2011. Logue was replaced by President and Chief Operating Officer Joseph “Jay” Hooley. In 2007, during Logue’s tenure, State Street completed its largest acquisition of Investors Bank and Trust Co.

State Street decided to give the award after a year when many politicians, investors and governance critics have questioned financial services industry’s pay packages.

Over the last 30 days, two of the 14 analysts covering the stock have lowered estimates for the first quarter of 2010, while no upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the first quarter is earnings of 97 cents per share, which would be down by 6.4% from the year-ago quarter.

The absence of upward estimate revisions for the first quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been steady over the last four quarters, with three positive surprises. The average remained positive at 7.1%. This implies that State Street has surpassed the Zacks Consensus Estimate by 7.1% over that period.

The downside potential for the estimate for the first quarter, essentially a proxy for future earnings surprises, currently stands at 5.2%.

State Street remains well-positioned with respect to its core business, primarily servicing, trading and securities finance, due to its significant leverage to global scale and full range of innovative products and services. Besides, the company has been experiencing decent growth in interest revenue.

All these factors have contributed to State Street’s profitability over the last couple of years despite the extraordinary turmoil in the global economy. Based on these strengths, we believe the company will experience a significant earnings boost with the gradual recovery in the overall economy. State Street has already repaid the $2 billion of government money it received under the Troubled Asset Relief Program (TARP).

Though we are concerned about the company’s risky investment portfolio exposure, we believe that prudent cost control and strong regulatory capital ratios along with well-off core servicing and investment management franchises will help offset the volatility caused by the global economic turmoil, thereby providing the buoyancy to grow in the medium to longer term.

Zacks Investment Research

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