State Street Adds $250 Million To Legal Reserve

BOSTON (AP) — State Street Corp. on Friday said it added $250 million to a legal reserve, and revised its third-quarter earnings results downward to reflect the change.

The financial services firm kept its 2009 forecast, but shares slipped in midday trading.

State Street, which provides financial services to institutional investors like retirement plans and insurance companies, said it boosted the legal reserve to cover potential fines from regulatory probes and to address ongoing lawsuits regarding risky investments.

The Boston company established the reserve during the fourth quarter of 2007 with $625 million after being hit with a number of suits charging it misrepresented its investment strategy. In an August regulatory filing, it said it had made $432 million in payments, and had $193 million left as of June 30.

State Street revealed in June that the Securities and Exchange Commission is investigating disclosures and management of the bank's fixed-income investments during 2007 and earlier periods.

That year, before the housing market collapsed, State Street's fixed-income investment unit increasingly invested in securities and bonds backed by subprime mortgages — loans given to customers with poor credit history. As the housing market unraveled in late 2007 and defaults on mortgages began to skyrocket, the value of those investments plummeted, leading to losses in the investment funds.