State Street’s legal reserve may not be enough to cover subprime claims
State Street Corp. says a legal reserve of about $625 million it established two years ago may not be enough to cover claims and potential penalties related to fixed-income investments that included subprime mortgages.
State Street Corp. says a legal reserve of about $625 million it established two years ago may not be enough to cover claims and potential penalties related to fixed-income investments that included subprime mortgages.
The Boston-based financial company disclosed the news in its quarterly filing with the Securities and Exchange early Monday morning.
State Street shares fell $1.81, or 3.4 percent, to $52.05 in afternoon trading.
In late June, the SEC told State Street it was considering enforcement action against the company after investigating its fixed-income strategies during 2007 and prior periods.
In 2007, State Street set up the reserve of about $625 million to cover potential claims over investments made by State Street Global Advisors.
After aggregate payments of $432 million, the reserve totaled about $193 million as of June 30, according to the filing.
“Depending upon the resolution of these government proceedings, the remainder of the reserve established in 2007 may not be sufficient to address ongoing litigation, as well as any such penalties or remedies,” State Street said in the filing.
State Street provides accounting, brokerage and other services to mutual funds, retirement plans, insurance companies and other customers.
Last month, the company reported a $3.31 billion loss as investment losses, repayment of federal TARP money and merger and integration costs pushed it into the red in the second quarter, reversing a year-earlier profit.
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