Fitch Affirms State Street; Places Investors Financial Services on Watch Positive

Business Wire, Feb 5, 2007

CHICAGO -- Fitch Ratings has affirmed the long-term, short-term, Individual and Issuer Default Ratings (IDRs) of State Street Corporation (State Street) and its affiliates. The Rating Outlook remains Stable. At the same time, Fitch has placed the long-term, short-term, Individual, and IDRs of Investors Financial Services Corporation (IFIN) and its affiliates on Rating Watch Positive. The Support rating of IFIN subsidiary Investors Bank & Trust Company has also been placed on Rating Watch Positive; support ratings of other entities remain unchanged. These rating actions follow today's announcement that State Street has agreed to acquire IFIN. A complete list of ratings follows at the end of this release.

State Street's Stable Rating Outlook reflects Fitch's belief that the company can absorb the acquisition without pressuring its existing ratings. Fitch expects to align IFIN's ratings with those of State Street at consummation, and therefore has placed debt and issuer ratings on Rating Watch Positive.

The transaction, when consummated, will expand State Street's scale and reach in the asset servicing business. State Street will be the second largest asset servicer in the world, behind only the Bank of New York/Mellon combination. State Street will also become the largest global servicer of hedge funds, a rapidly growing sector of the custodial business. The transaction, which is scheduled to close in third quarter-2007 (3Q'07), is expected to be neutral to GAAP earnings in 2008 and accretive thereafter, assuming that client retention goals and cost save targets are reached.

Still, the deal poses several challenges. The projected cost saves are relatively high, at approximately 50% of IFIN's expense base. Fitch notes that the degree of difficulty is reduced by the degree of overlap between State Street's and IFIN's operations. Client retention is a second challenge. Many of IFIN's clients are mutual funds that compete with State Street's investment management subsidiary, State Street Global Advisors (SSgA). The largest IFIN client, Barclays Global Investors (BGI), provides 18% of IFIN's revenue and competes directly with SSgA in exchange traded funds and indexed funds. State Street may find it difficult to avoid attrition of IFIN's revenue base, whether through client losses or contract renegotiations. The third challenge will be systems integration as State Street management plans to migrate many of IFIN's customers onto its existing service platforms.

On the positive side, Fitch notes that State Street has recent experience in integrating a major custodial acquisition with its 2003 purchase of the Global Securities Servicing division of Deutsche Bank. Fitch also notes that IFIN's expertise of servicing complex pooled funds is already a core product of State Street. Tangible common equity will decline to about 4.25% at closing, near the bottom end of management's target range. However, this level will be rebuilt by amortization of intangibles going forward, and will also be supplemented by new issues of high equity content trust preferred securities.

Fitch has affirmed the following ratings with a Stable Outlook:

State Street Corporation

--Long-term Issuer Default Rating (IDR) 'AA-';

--Long-term senior 'AA-';

--Long-term subordinated 'A ';

--Short-term Issuer 'F1 ';

--Short-term debt 'F1 ';

--Individual 'A/B'.

State Street Bank and Trust Company

--Long-term Issuer Default Rating (IDR) 'AA-';

--Long-term subordinated 'A ';

--Short-term Issuer 'F1 ';

--Short-term deposits 'F1 ';

--Individual 'A/B'.

State Street Capital I

State Street Institutional Capital Trust A-B

--Trust preferred securities `A .'

Additionally, Fitch has placed the following ratings on Rating Watch Positive:

Investors Financial Services Corporation

--Long-term Issuer Default Rating (IDR) 'A';

--Short-term Issuer 'F1';

--Individual 'B'.

Investors Bank & Trust Company

--Long-term Issuer Default Rating (IDR) 'A';

--Long-term deposits 'A ';

--Short-term Issuer 'F1';

--Short-term deposits 'F1';

--Individual 'B';

--Support '5'.

Investors Capital Trust I

--Trust preferred securities `A-'.

The following Support ratings are affirmed:

State Street Corporation

--Support '5'.

State Street Bank and Trust Company

--Support '2'.

Investors Financial Services Corporation

--Support '5'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.