State Street says it faces billions in unrealized losses

Fitch Ratings is considering cutting the credit ratings of State Street Corp., the ratings agency said today after the Boston financial services company reported steep losses in its investment portfolio during the first quarter, the Associated Press reported.

In morning trading on the New York Stock Exchange, State Street shares were trading at $72.94, down $3.92 or 5.1 percent.

State Street, which manages $14.9 trillion in assets for banks and investors, posted a $530 million profit for the first quarter today, an increase of 69 percent from a year ago.

Fitch said the company's major business of overseeing clients' assets remains strong.

However, State Street's $75.4 billion investment portfolio lost $3.16 billion in value during the quarter. The portfolio has some vulnerability to riskier bonds secured by bad credit, which have been pummeled amid the credit crisis, the AP said.

While Fitch said many of these losses are possibly overstated, the potential for more losses is significant.

State Street was seen until now to be less affected by the credit crisis that forced many banks write down billions of dollars in losses, noted the Reuters news service in a separate story; Reuters added that State Street took a $279-million charge in the fourth quarter to settle lawsuits tied to losses on mortgage market investments.

The disclosure came on the day that State Street issued quarterly earnings results.

According to an AP story, State Street said today that net income rose to $530 million from $314 million during the same quarter a year ago.

Revenue rose to $2.58 billion from $1.7 billion in the year-ago quarter.

In a statement, chairman and chief executive Ronald E. Logue (right) said he was extremely pleased with State Street's record revenue performance.

The only area where State Street saw a decline in revenue was processing fees, where revenue fell 26 percent to $54 million due to lower revenue from structured products, the AP reported.

To read State Street's press release on its earnings report, click here.