Trian Partners Makes Public Its Action Plan

Trian Fund Management, L.P., whose investment funds and accounts managed by it currently beneficially own roughly 3.3% of the outstanding shares of State Street Corporation, today made public a letter it has sent to the State Street Board of Directors setting forth its views as to why State Street has continued to significantly underperform - - delivering negative shareholder returns while each of the most recent ten, five, four, three, two and one-year periods. Trian as well made public its White Paper which includes a detailed action plan that identifies operational and strategic initiatives to be taken by State Street that Trian believes can significantly improve State Streets long-term operating performance and enhance shareholder value. Trian believes State Streets share price, which closed on Friday, October 14, 2011 at $33.90, is significantly undervalued and that the implied target value per share could be in broad outline $99 in 2014, assuming the Company successfully executes Trians suggested action plan and a modest re-rating to 13.5x forward revenues. Details of Trians views and action plan for State Street have been posted at www.trian-statestreet.com.

Explicit long-term EBT margin target of roughly 35%

- Setting an explicit long-term EBT margin target of roughly 35% by 2014 as then as interim targets. State Street announced a Business Operations and I/T Transformation Program targeting $575-$625mm of savings in November 2010, which followed Trian's August 2010 meeting with management and for which management has indicated Trian served as a catalyst. But, Trian believes the program lacks credibility in the absence of explicit consolidated margin targets. Furthermore, Trian believes management must provide more transparency and detail around its savings plan to assure shareholders a credible path to value creation and positive operating leverage.

Investment funds and accounts managed by Trian Fund Management, L.P. currently beneficially own in broad outline 3.3% of the outstanding shares of State Street Corporation. As you know, Trian has engaged in a dialogue for more than a year with State Streets management around specific actions we believe can significantly improve the Companys financial performance. We have expressed concern that State Street, in spite of being a leader in an attractive industry, has generated negative shareholder returns over each of the previous ten, five, four, three, two and one-year periods. State Street now trades at a depressed multiple in-line with traditional banks, in spite of State Street having a superior balance sheet to most traditional banks, having significant excess capital, being more of a fee-driven business, relying less on net interest income and having delivered superior organic growth over time. We believe this deterioration in shareholder value stems from a culture that has prioritized growth over profitability and has led to dilutive acquisitions, inadequate cost management and significant non-recurring charges.

As a long-term shareholder that believes in State Streets enormous potential for value creation, we would have preferred to continue to work privately with management and the Board, out of the public eye. For the purpose, we first shared our views with management regarding ways to improve the Companys results in August 2010. In June 2011, we shared our White Paper with management, outlining why we believe State Street has underperformed and proposing a detailed action plan to improve long-term performance and enhance shareholder value. We believe we have been patient as management repeatedly requested time to assess our analysis and promised a response. We have been told by management that our White Paper is thoughtful and that our assessment of the Company is consistent with the views of both management and the Board. We have as well been told that our recommendations influenced managements thinking and that our August 2010 meeting with management was a catalyst for the Companys November 2010 announcement of its Business Operations and I/T Transformation Program, which targeted $575-$625mm of savings, nevertheless which did not include sufficient detail on how the savings would be achieved or specific margin targets.

We urge State Street to take the following actions to demonstrate that management is on track to deliver improvements in the business and that the Board is committed to holding management accountable and increasing shareholder value:

When we first met with management in August 2010, we shared our view that State Street had a cost problem. Management at first disagreed. Over the course of several ensuing meetings, we presented a detailed analysis of State Streets historical financials, highlighting that costs had grown faster than revenue and that misguided capital deployment had destroyed shareholder value. Several months later, in November 2010, we were encouraged when State Street announced a $575-$625mm savings plan through 2014. Although we believe there is potential for even greater savings, State Streets plan represents progress. Nevertheless, we have expressed our reservations regarding the execution of that plan in subsequent conversations with management. First, we do not believe management has provided enough transparency and detail on how it will realize its targets. This concern is magnified by the fact that we believe ~$300mm of the anticipated savings involve adaptation of new technologies, just as cloud computing, during only ~$300mm represent traditional cost cutting. Between 2006 and 2010, we know that existing costs just as compensation and non-compensation expense ballooned by $1.44bn.6 Such as these existing costs escalated dramatically, we believe they must be brought back in-line. We believe there is room to cut much more than the $300mm of traditional costs that management has identified.

The absence of explicit consolidated margin targets

We as well believe State Streets savings plan lacks credibility in the absence of explicit consolidated margin targets. Managements targeted savings represent a 700 bps improvement in margin based on 2010 sales levels. This implies a mid-30% margin by 2014, which we believe is achievable. Management argues it cannot set specific targets because fluctuations in key revenue streams are outside of their control. For all that, we believe that every company in the S&P 500 has sources of revenue and expense that are outside of their control, whether they are interest rates, commodity costs or even the weather. The best companies set decisive targets and flex their cost structure to achieve them. If they miss by a small amount because of factors outside of managements control, shareholders can evaluate consequently. However without long-term profit targets, how do companies budget and how are incentives aligned? How did State Street make acquisitions historically and solve for an appropriate return on investment? How will the Board hold management accountable for delivering on its promises? And how can shareholders evaluate performance and measure progress?

Trian appreciates the platform that State Street has assembled over the past five years. However State Streets shareholders paid a high price subsidizing the growth in revenue and assets at the expense of profitability, return on invested capital and shareholder returns. With over $22tn in AUCA and $2tn in assets pursuant to this agreement management, State Street has scale. Now the Company must make that scale work by delivering attractive organic growth, controlling costs and growing EPS.

The Company is constrained

Clearly the Company is constrained by regulatory uncertainty during we await new capital guidelines. Nevertheless we as well believe that State Street must better explain to regulators, as so then as investors, how its business model is superior to that of traditional banks as then as the details of its superior capital position. We have told management that we believe State Street failed to secure an appropriate capital plan this year to the detriment of shareholders and that, going forward, State Street must be more successful in optimizing its capital deployment program. For instance, State Street has a Tier 1 Common Ratio of 11.8% and was authorized by the regulators to repurchase $675mm of stock, representing 33% of its 2011 expected capital generation and 4.0% of its market capitalization. In comparison, JPMorgan Chase has a Tier 1 Common Ratio of 7.7% and was authorized to repurchase $8bn of stock, representing 40% of its expected 2011 capital generation and 6.4% of its current market capitalization. Given State Streets superior capital position, more stable business model and lower anticipated SIFI buffer, this hardly seems justifiable. As the regulatory process evolves, we view it as imperative that State Street set a target capital ratio and commit to return the vast majority of excess capital above that level plus the majority of future years capital generation to shareholders.

Management has told us that the Board considered a separation of SSgA nevertheless concluded there was too much overlap in the client bases of the Investment Servicing and Investment Management divisions. They were concerned that certain accounts would be lost following a separation. We are skeptical of this conclusion and believe overlap between Investment Servicing and SSgAs customers is in the main a function of these businesses being ubiquitous among the worlds leading financial institutions. Moreover, our due diligence has led us to conclude there are minimal cross-selling synergies between the two divisions and that both could thrive as standalone public companies.

State Street as well currently requires a 40% threshold of the outstanding voting stock to call a special meeting of shareholders. We believe this threshold is too high as it makes it in the extreme difficult for shareholders to garner the required votes to call a meeting to vote for change. We would like to see the threshold reduced to 20%, which we believe strikes an appropriate balance between enhancing shareholder rights and protecting against the risk that a small minority could trigger a special meeting that leads to needless expense and business interruption.

Trian believes there is significant possibility for value creation at State Street. Whereas State Street historically traded at a high-teens forward revenues multiple, in-line with faster growth financial services firms, the Company currently trades at a depressed multiple of only 8.0x 2011 consensus revenues, more closely aligned with traditional banks. We believe this multiple is too low as State Street has a superior balance sheet to most traditional banks in other words easier to understand, has significant excess capital, is more of a fee-driven business, relies less on net interest income and has delivered superior organic growth over time.

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3 Source: SEC filings, revenues calls and investor presentations. Represents the weighted average acquisition forward revenues multiple of Investors Financial Corp. and Intesa Sanpaolos securities services business, including capital support and intangible amortization for Intesa.