There is this recursive sort of double-take one does on learning that a firm is on the verge of exhausting its legal reserve. First, that the firm needed a large legal reserve. Second that it was exhausted. Third, that "large" in this instance is $650 million. Whoosh!
Somewhere there is a fantastic punch line in there when the horrified looks are placated by a quick "Yeah, it's State Street Bank." Everyone goes back to drinking a middling California Chardonnay. That this would be soothing should be irritating.
State Street Corp. may deplete the $625 million set aside in 2007 to settle legal claims stemming from losses linked to subprime mortgages.
The reserve "may not be sufficient to address ongoing litigation" if the U.S. Securities and Exchange Commission sues State Street and seeks monetary penalties, the Boston-based custody bank said in a regulatory filing today. The SEC told State Street that it might be sued over disclosures about and management of fixed-income investments through 2007, the company said June 25.
"We're not going to speculate as to the amount of any potential monetary penalty," Carolyn Cichon, a spokeswoman for State Street, said in a telephone interview.
No reason, it seems, to be alarmed. Of course the reserve got spent. That's what it is there for.
The company declined 99 cents to $52.87 at 11:06 a.m. in New York Stock Exchange composite trading. It has gained 34 percent this year, compared with the 25 percent rise for the Standard & Poor's index of asset managers and custody banks.
That's a modest decline, isn't it. Lower administration costs now that $625 million no longer resides in the building?
State Street May Exhaust $625 Million Legal Reserve [Bloomberg]