State Street’s subprime mess

Subprime problems are smacking State Street (STT). The asset manager warned Thursday morning that it will have to set aside $618 million to cover legal costs tied to the company’s foray into subprime investments via its State Street Global Advisors unit. State Street said the legal worries stem from “customer concerns as to whether the execution of these strategies was consistent with the customers’ investment intent.” Their suitability aside, the strategies have already been costly for State Street and its clients: Assets in 12 fixed-income strategies plunged 67 percent over the course of three months to $2.6 billion at the end of the third quarter, Financial Week reported, amid hefty losses and customer defections.

Customers aren’t the only ones leaving State Street, though. William Hunt is stepping down as CEO of State Street Global Advisors, to be replaced on an interim basis by State Street exec James Phalen. In November, the firm bid adieu to three top fixed-income execs who were involved in making the bad subprime bets. Last month, a group of international stock managers departed, the Boston Globe notes. Next, look for investors to flee the shares, which, unlike most financial stocks, remain within striking distance of their 52-week high. “SSGA has an exceptional team of professionals,” Phalen said, “and I look forward to helping them continue to build on their track record of growth and industry innovation.” Customers will be hoping Phalen can prevail on State Street to be a little less innovative, frankly.