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The head of State Street's (NYSE: STT) investment unit has resigned, the company announced Thursday. It also said that it will set aside $618 million, including $279 million, or 71 cents per share, to establish a fund to cover legal and related costs due to losses in its fixed-income strategies.

State Street said William Hunt, CEO of State Street Global Advisors (SSgA), was replaced by James Phalen on an interim basis. Phalen will report directly to State Street's CEO, Ronald Logue.

"We have reviewed the actively managed fixed-income strategies at SSgA that contained investments backed by sub-prime mortgages. Based on our review and discussions with certain customers who were invested in these strategies, we have established this reserve to address legal exposure and other costs relating to these strategies," Logue said in a statement.

Including the aforementioned earnings charge, 2007 earnings per share are expected to be $3.42-$3.45. Excluding the charge, 2007 earnings per share are expected to be $4.54-$4.57. The Reuters 2007 EPS consensus estimate for STT is $4.20, excluding charges.

Relief rally?

Wall Street's reaction to State Street's announcement was decidedly not negative, as State Streets' shares gained more than 5% or $4.72 to $83.61 in Thursday morning trading.

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State Street takes charge, investment head resigns, but shares rise originally appeared on BloggingStocks on Thu, 03 Jan 2008 11:12:00 EST. Please see our terms for use of feeds.

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