State Street's Earnings Fall 28% on Legal Fund Costs

(Bloomberg) -- State Street Corp., the world's largest money manager for institutions, said fourth-quarter earnings fell 28 percent after setting aside $618 million to settle legal claims stemming from losses on subprime mortgages.

Net income declined to $223 million, or 57 cents a share, from $309 million, or 91 cents, a year earlier, the Boston-based company said today in a statement. State Street dropped 5.5 percent in New York composite trading after the company said 2008 growth will be at the lower end of its target ranges.

State Street faces at least three class-action lawsuits from investors claiming its funds made inappropriate bets on subprime-backed securities. It disclosed the legal reserve Jan. 3 and replaced William Hunt, its chief investment officer for the past three years. State Street's 2008 forecast follows a year in which the company exceeded analysts' estimates.

``People are trying to figure out just how much of the strength State Street showed in 2007 is truly sustainable,'' Thomas McCrohan, an analyst at Janney Montgomery Scott LLC in Philadelphia, said in an interview today.

State Street fell $4.03 to $80.83 at 9:38 a.m. in New York Stock Exchange composite trading after declining to as low as $80.20. Before today, the stock had risen 19 percent in the past year, compared with the 4.9 percent gain by the Standard & Poor's Supercomposite Asset Management and Custody Banks Index.

Excluding the legal reserve of $279 million after tax, or 71 cents a share, profit was $1.38 a share, beating the $1.35 average estimate of 15 analysts surveyed by Bloomberg. State Street's earnings for 2007 were $4.57 a share, outpacing the $4.55 estimate of the 15 analysts.

 

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