[R]12:30PM New York – State Street revenue surges 52% and earnings rise of 69%.[/R]

State Street Corporation a financial holding company said that in the first quarter of 2008 revenue surged 52% to $2.6 billion from $1.696 billion compared to the same period last year. Earnings in the first quarter surged 69% to $530 million from $314 million a year ago.

Stock fell nearly 10% before recovering to a loss of 7% after the company executives in the conference call said that may have to bail out four funds that have investment of $1.5 billion in mortgage securities. The losses in the funds, at present are relatively small, but the size of the exposure to the risky and declining securities unnerved investors. Separately Fitch, credit rating agency said that it may review company’s credit rating considering the revised exposure to the riskier securities.

Assets under management rose to $1.96 trillion from $1.85 trillion and assets under custody rose to $14.9 trillion from $12.33 trillion.

In the quarter earnings per share were $1.35, up 45% from earnings per share of $0.93 a year ago. Earnings per share increased to $1.35 from $0.57 in the fourth quarter of 2007.

Total expenses in the first quarter were $1.774 billion, up 46.2% from $1.213 billion compared to the year-ago quarter and excluding the merger and integration costs would be $1.748 billion, up 44.1%. Servicing fee revenue increased 34% and asset management fee revenue grew 7% from the prior year. Investment management fees, generated by State Street global advisors increased 7% to $278 million from $261 million in the year-ago quarter.

Servicing fees are $960 million, declined from $967 million in the fourth quarter due to a decline in daily equity valuations, partially offset by business from new and existing customers. Management fees declined 6% to $278 million from $297 million due to a 10% decline in month-end equity valuations and lower performance fees.

Trading services revenue increased 4% to $366 million from $352 million due to increased volatility in foreign exchange markets. Securities finance revenue increased 18% to $303 million on increased spreads reflecting the recent actions by the Federal Reserve in reducing interest rates, offset partially by lower volumes due to a decline in market values.

Processing fees and other revenue decreased slightly to $54 million from $55 million.

Separately Fitch rating services is reviewing downgrading its credit rating on the trust bank debt after it reported that the portfolio of investments declined by $3.16 billion to $75.4 billion. The larger loss with exposure to leveraged loans and mortgage securities hurt the stock in today’s trading despite strong operating performance.

State Street (STT: chart) stock fell $5.40 or 7% at mid-day to $71.50.