State Street Corporation (NYSE: STT) today announced that it has added $250 million, as of September 30, 2009, to the reserve it established in 2007 to address legal exposure related to losses incurred by investors in certain active fixed-income strategies managed by State Street Global Advisors (SSgA). The Company believes the adjusted reserve should be sufficient to account for a potential resolution of proceedings by the Securities and Exchange Commission and other governmental authorities, and to address ongoing litigation with respect to this matter.

Since 2007, SSgA has made significant changes to its organization, including establishing new leadership, and has made substantial investments in its operating platform, including its risk management and compliance operations.

State Street also announced that it recently entered into a settlement of the purported class action with respect to ERISA participants in the active fixed -income strategies. The proposed settlement of $89.75 million is subject to court approval.

Prior to recording the $250 million provision for legal exposure, the legal reserve totaled $193 million. After giving effect to the $250 million provision, the reserve as of September 30, 2009, as adjusted is $443 million, and should be sufficient to settle the above matters, including the purported class action.

For the third quarter of 2009, updated reported results are earnings per share of $0.66 on net income of $327 million. Return on common shareholders’ equity is 10.2%, down from the previously announced 16.0%. Operating–basis results for the third quarter of 2009 exclude the provision for legal exposure and are unchanged from the operating-basis results announced on October 20, 2009.

State Street’s outlook for the full-year 2009 remains unchanged with operating basis revenue expected to decline about 16 percent from the record level of 2008; operating earnings per share, excluding the impact of the extraordinary loss recorded upon consolidation of the commercial paper conduits in the second quarter of 2009, and the provision for legal exposure announced today, to be between $4.13 and $4.17 and operating return on equity to be between 14 and 17 percent.

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $17.9 trillion in assets under custody and administration and $1.7 trillion in assets under management at September 30, 2009, State Street operates in 27 countries and more than 100 geographic markets worldwide. For more information, visit State Street’s web site at www.statestreet.com.

FORWARD-LOOKING STATEMENTS

This news announcement contains forward-looking statements as defined by United States securities laws, including statements about the sufficiency of the increased reserve discussed in this news announcement, as well as about our goals and expectations regarding our business, financial condition, results of operations and strategies, the financial and market outlook, governmental and regulatory initiatives and developments, and the business environment. These statements are not guarantees of future performance, are inherently uncertain, are based on current assumptions that are difficult to predict and involve a number of risks and uncertainties. Therefore, actual outcomes and results may differ materially from what is expressed in those statements, and those statements should not be relied upon as representing our expectations or beliefs as of any date subsequent to the date of this release.

Important factors that may affect future results and outcomes include, but are not limited to:

  • financial market disruptions and the economic recession, whether in the U.S. or internationally, and monetary and other governmental actions designed to address such disruptions and recession, including actions taken in the U.S. and internationally to address the financial and economic disruptions that began in 2007;
  • increases in the potential volatility of, or declines in the levels of, our net interest revenue, changes in the composition of the assets on our consolidated balance sheet and the possibility that we may be required to change the manner in which we fund those assets;
  • the financial strength and continuing viability of the counterparties with which we or our customers do business and to which we have investment, credit or financial exposure;
  • the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities, and the liquidity requirements of our customers;
  • the credit quality, credit agency ratings, and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the respective securities and the income statement recognition of an impairment loss;
  • the maintenance of credit agency ratings for our debt and depository obligations as well as the level of credibility of credit agency ratings;
  • the possibility of our customers incurring substantial losses in investment pools where we act as agent, and the possibility of further general reductions in the valuation of assets;
  • our ability to attract deposits and other low-cost, short-term funding;
  • potential changes to the competitive environment, including changes due to the effects of consolidation, extensive and changing government regulation and perceptions of State Street as a suitable service provider or counterparty;
  • the level and volatility of interest rates and the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally;
  • our ability to measure the fair value of the investment securities on our consolidated balance sheet;
  • the results of litigation, government investigations and similar disputes and, in particular, the effect of current or potential proceedings concerning State Street Global Advisors’, or SSgA’s, active fixed-income strategies and other investment products;
  • the enactment of legislation and changes in regulation and enforcement that impact us and our customers;
  • adverse publicity or other reputational harm;
  • our ability to pursue acquisitions, strategic alliances and divestures, finance future business acquisitions and obtain regulatory approvals and consents for acquisitions;
  • the performance and demand for the products and services we offer, including the level and timing of withdrawals from our collective investment products;
  • our ability to grow revenue, attract and/or retain highly skilled people, control expenses and attract the capital necessary to achieve our business goals and comply with regulatory requirements;
  • our ability to control operating risks, information technology systems risks and outsourcing risks, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will fail or be circumvented;
  • the potential for new products and services to impose additional costs on us and expose us to increased operational risk, and our ability to protect our intellectual property rights;
  • changes in government regulation or new legislation, which may increase our costs, expose us to risk related to compliance or impact our customers;
  • changes in accounting standards and practices; and
  • changes in tax legislation and in the interpretation of existing tax laws by U.S. and non-U.S. tax authorities that impact the amount of taxes due.

While State Street has, as announced above, determined it is appropriate to increase its reserve for the active fixed-income matter, State Street has not entered into a settlement agreement with the SEC or any other governmental authority at this time and there can be no assurance that State Street will do so in the future. If such settlement discussions are not successful and the SEC or other regulators were to pursue an enforcement action, they would likely seek monetary or other penalties or remedies, which may be greater than such reserve. There can be no assurance that State Street will be able to agree upon terms of a settlement with these governmental authorities and, if the Company were unable to do so and the SEC or other governmental authorities were to commence an enforcement proceeding, such enforcement proceeding, and the outcome thereof, may have a material adverse effect on the Company’s business.

Other important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in our 2008 Annual Report on Form 10-K, our Current Report on Form 8-K dated May 18, 2009, and our subsequent SEC filings. We encourage investors to read these filings, particularly the sections on Risk Factors, for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this press release speak only as of the date hereof, November 6, 2009, and we do not undertake efforts to revise those forward-looking statements to reflect events after this date.

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