Updated from 8:44 a.m. EST
(STT - Get Report) surged nearly 8% after investors shrugged off the bank's announcement of a $279 million fourth-quarter charge and the departure of a top executive as subprime investment losses mount.
The Boston-based institutional investment giant says it will take an after-tax charge of $279 million, or 71 cents a share, to cover potential legal costs related to losses from its mortgage-backed investments. State Street plans to create a $618 million legal defense fund as a result of the investment losses. The company also says William Hunt, the CEO of State Street Global Advisors, has resigned and James Phalen has taken over as interim chief of the investment management arm.
"We have reviewed the actively managed fixed-income strategies at
State Street Global Advisors
that contained investments backed by subprime mortgages. Based on our review and discussions with certain customers who were invested in these strategies, we have established this reserve to address legal exposure and other costs relating to these strategies," State Street CEO Ron Logue said in a press release.
"State Street values its reputation as a trusted fiduciary to institutions around the world and recognizes the critical importance of preserving this reputation with its customers," Logue continued. "Some of our customers that were invested in the active fixed-income strategies have raised concerns that we intend to address. Nevertheless, we will continue to defend ourselves vigorously against inappropriate claims, including those that seek recovery of investment losses arising solely from changes in market conditions."