Fitch cuts State Street individual rating to B

Fitch Ratings said it revised the outlook on State Street Corp. to negative from stable and downgraded the bank's individual rating to B from A/B. Fitch affirmed all of State Street's other outstanding ratings.

The action follows State Street's announcement that it will record a $279 million after-tax charge to establish a $618 million reserve to cover legal exposure and other costs related to the underperformance of several of State Street Global Advisors' actively managed fixed-income funds, specifically those that contained investments backed by subprime mortgages.

Fitch said it downgraded the individual rating because operating losses of this magnitude are not consistent with the previous rating of A/B. Fitch said it believes there were deficiencies in the control environment that allowed the potential exposure to develop.

The outlook revision indicates the potential hit to volume if customers lose confidence in State Street's risk control capabilities, the agency said.

Fitch said it affirmed State Street's long-term issuer default and senior ratings at AA-, long-term subordinated rating at AA- and short-term issuer default rating at F1 in light of the company's strong franchise and good earning capacity.

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