Update: State Street Denies Claims Its Legal Reserve Fund Is Too Small

Boston, MA (AHN) - Following a report claiming that the Boston, Massachusetts-based State Street Corp. subprime damages may surpass its legal reserve fund, the largest money manager responded that the report is wrong.

Bloomberg on Thursday claimed that the money manager may not have enough in reserves to cover potential damages arising from lawsuits related to the company's involvement in subprime securities investments. According to reports, the firm may have to shell out more than 12 times the amount it has reserved, $625 million, if it loses lawsuits by four companies including Prudential Financial Inc. on behalf of more than 200 retirement plans.

The second-largest U.S. life insurer, Prudential has charged State Street with inappropriately investing funds in risky securities. Responding to the claims, State Street said in a statement released by Businesswire, "[it] conducted a detailed analysis to arrive at the reserve that was established in January 2008."

According to the report, the firm's value of assets, which were "adversely affected" due to the subprime crisis, dropped by 56 percent to $6.1 billion at the end of 2007 from $13.9 billion on June 30. The difference of $7.8 billion noted in drop represents the money manager's maximum legal exposure, pension-fund attorney Marcia Wagner told Bloomberg.

"Taking the decline in assets under management from point to point, as represented by the Bloomberg report, is not an appropriate or accurate way to calculate potential investment losses or the company's potential exposure," State Street said in a statement. "State Street is required to review the adequacy of this reserve each quarter and currently believes it to be appropriate. The participants in this quarterly review include outside counsel."