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State Street increases legal reserve established in 2007

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State Street has added USD250m to the reserve it established in 2007 to address legal exposure related to losses incurred by investors in certain active fixed-income strategies managed by State Street Global Advisors.

The company believes the adjusted reserve should be sufficient to account for a potential resolution of proceedings by the Securities and Exchange Commission and other governmental authorities, and to address ongoing litigation with respect to this matter.

Since 2007, SSgA has made significant changes to its organisation, including establishing new leadership, and has made substantial investments in its operating platform, including its risk management and compliance operations.

State Street recently entered into a settlement of the purported class action with respect to ERISA participants in the active fixed -income strategies. The proposed settlement of USD89.75m is subject to court approval.

Prior to recording the USD250m provision for legal exposure, the legal reserve totalled USD193m. After giving effect to the USD250m provision, the reserve as of 30 September 2009 is USD443m, and should be sufficient to settle the above matters, including the purported class action.

For the third quarter of 2009, updated reported results are earnings per share of USD0.66 on net income of USD327m. Return on common shareholders’ equity is 10.2 per cent, down from the previously announced 16.0 per cent. Operating basis results for the third quarter of 2009 exclude the provision for legal exposure and are unchanged from the operating-basis results announced on 20 October 2009.

State Street’s outlook for the full-year 2009 remains unchanged with operating basis revenue expected to decline about 16 per cent from the record level of 2008. Operating earnings per share, excluding the impact of the extraordinary loss recorded upon consolidation of the commercial paper conduits in the second quarter of 2009 and the provision for legal exposure announced today, are expected to be between USD4.13 and USD4.17 and operating return on equity to be between 14 and 17 per cent.

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