The Boston-based financial services firm revealed it has tapped James Phalen as the interim president and chief executive officer of State Street Global Advisors (SSgA), replacing William Hunt, whom the company said has stepped down after three years. The company will start searching for a permanent replacement for Hunt, according to the announcement.
State Street said 57-year-old Phalen is currently responsible for its investment services and investment research and trading operations outside of North America.
In 2000, having overseen the combination of SSgA and Citigroup’s retirement business to form CitiStreet, he became CitiStreet’s CEO. Phelan returned to State Street in 2005 where he was appointed head of State Street’s investment servicing business in North America before assuming his international role in 2007.
The company is facing lawsuits filed by clients who accused it of selling investment strategies as low risk, but which ultimately led to substantial losses because of holdings in mortgage-backed securities (See State Street Faces Two More Lawsuits Over Bond Fund Losses).
State Street said the reserve will actually be $618 million on a pre-tax basis. However, after taking into account the tax effect of the reserve and associated lower incentive compensation cost, the net earnings impact will be $279 million.
“The purpose of the charge is to establish a reserve to address legal exposure and other costs associated with the underperformance of certain active fixed-income strategies managed by State Street Global Advisors (SSgA), the company’s investment management arm, and customer concerns as to whether the execution of these strategies was consistent with the customers’ investment intent,” State Street said in the statement. “As a consequence of the unprecedented events in the credit markets over the past six months, these strategies were adversely impacted by exposure to, and the lack of liquidity in, sub-prime mortgage markets.”
Ronald E. Logue, chairman and chief executive officer of State Street, echoed the company’s earlier insistence that the fixed-income clients who suffered losses had the market to blame and not necessarily his firm’s money management strategy.
“State Street values its reputation as a trusted fiduciary to institutions around the world and recognizes the critical importance of preserving this reputation with its customers,” Logue asserted in the statement. “Some of our customers that were invested in the active fixed-income strategies have raised concerns that we intend to address. Nevertheless, we will continue to defend ourselves vigorously against inappropriate claims, including those that seek recovery of investment losses arising solely from changes in market conditions.“