( Reuters )- State Street Corp (STT.N) said on Thursday that it expected to report strong quarterly operating earnings, which overshadowed news of a $279 million charge for subprime mortgage-related bets and sent the company's shares up more than 7 percent.
The announcement by the world's biggest institutional money manager also sparked a rally in shares of rivals Bank of New York Mellon (BK.N) and Northern Trust Corp (NTRS.O) on hopes of similarly strong results from these companies, which are seen as far less exposed than State Street is to subprime debt.
State Street said the charge of 71 cents per share would address legal and other costs from exposure to and illiquidity in subprime mortgages.
The Boston-based company had said earlier that three customers had sued it in October over investment losses suffered from exposure to subprime investments.
State Street estimated operating earnings of $4.54 to $4.57 per share, excluding the charge, merger costs, and tax adjustments, for the whole of 2007.
That means fourth-quarter earnings would be $1.39 to $1.42 per share. Analysts on average were expecting $1.06, according to Reuters Estimates.
"The investment community is looking beyond the charge and looking at the very, very strong fourth-quarter results," said Nancy Bush, managing member of NAB Research LLC in Aiken, South Carolina. She had estimated operating earnings at $1.09 per share for the period.
State Street, which had about $2 trillion of assets under management on September 30, also said it was replacing William Hunt as its investment management chief.
Hunt, who had led the State Street Global Advisors unit, resigned on Wednesday after nearly three years in the job. James Phalen , 57, head of international operations for investment servicing and investment research and trading, was named the unit's interim president and chief executive, reporting to State Street Corp CEO Ronald Logue.
According to a regulatory filing, Hunt is entitled to severance and benefits valued at about $14.1 million. He also agreed not to work for a competitor for 18 months, but may establish a hedge fund after six months or join an independent hedge fund after 12 months, the filing said.
State Street joins a growing list of financial services companies to record losses tied to deteriorating global credit markets.
The company said it expected 2007 net earnings of $3.42 to $3.45 per share.
State Street is also one of the world's largest providers of custody services for institutional investors, overseeing $15.1 trillion of assets.
State Street shares were up 7.3 percent at $84.66 in morning New York Stock Exchange trade, while Bank of New York Mellon rose 3.8 percent to $48.92. On Nasdaq , Northern Trust gained 3.1 percent to $76.34.
"Neither of these companies had the sort of exposure in asset management to subprime that State Street had," said NAB Research's Bush. "So I don't see this as being an industrywide issue."