State Street wasn’t prudent with subprime mortgages, investing big and getting burned.
But the firm did shrewdly set up a legal fund in 2007 to deal with related lawsuits.
Unfortunately, they’re already almost out of money.
As The Wall Street Journal reports:
“State Street Corp.’s $625 million reserve fund for legal costs related to the subprime crisis “may not be sufficient,” the company said in a federal filing Monday.
State Street, a Boston bank that provides custodial and money management services to the financial industry, established the reserve in 2007 for legal exposure related to fixed-income investment strategies the company employed leading up to sub-prime meltdown.”
The reserve was down to $193 million as of June 30, State Street said in a filing with the Securities and Exchange Commission. In the filing, State Street said there may not be enough left in the fund to pay for ongoing litigation, as well as civil penalties from possible enforcement actions.”
Indeed, the suits have been piling up. In June, the SEC told the company that it may be hit with a civil enforcement action over the fixed-income strategies. Today, the company said SEC staff members had “asked the agency to authorise an action alleging State Street violated antifraud provisions of federal securities laws,” reports Reuters.
WSJ also notes how State Street has faced “private lawsuits and regulatory probes over investment losses in certain strategies, which the company says included sub-prime investments.” That includes Prudential Financial and the state of Massachusetts, Bloomberg notes.
Shares fell 2.4% today.
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