ALL BUSINESS: Investor trust slumps when companies bury news

Winning over investor confidence these days doesn't come by burying news. Amid today's punishing financial crisis and economic downturn, shareholders want and deserve to know straight up about anything that could potentially hurt business or profits.

State Street sent out a news release topping 3,000 words the length of a magazine article at around 7 a.m on Tuesday morning. The release hyped its better-than-expected 45 percent gain in first-quarter earnings per share and its record revenues.

"I am extremely pleased with this record revenue performance, particularly in today's challenging environment," CEO Ronald Logue said in a statement. "The momentum we have achieved over the past 12 months continues, despite the negative equity markets."

There were the obligatory statements about "important factors" that could affect future results. But mostly, the Boston-based company, which provides investment services and management to the likes of mutual and pension funds, seemed to give investors a lot of reasons to cheer.

In the first minutes of trading on Tuesday morning, the stock rose from its Monday close of $76.86 a share to $77, then $78 and topped $79. Had it stuck there, State Street would have turned in a decent 2 percent price gain for the day.

Then investors began to chew on the vague "challenges" that Logue talked about five minutes into his prepared comments during the company's call with analysts more than two hours after the initial earnings news release had gone out.

Minutes later, CFO Ed Resch told of how the company's $73.3 billion investment portfolio lost $3.2 billion in value during the quarter, up from $1.1 billion at the end of last year. The value of the portfolio, of which 40 percent is in mortgage-backed securities including some that are subprime, had been hurt by illiquidity in the marketplace.

The bank has yet to recognize those losses which is why they didn't show up in their trumped-up earnings release. It won't have to, either, under accounting rules unless the change in market value is considered other than temporary. But if those declining values stick, it could haunt State Street down the road, forcing it to realize those losses in coming quarters.

Resch went on to talk about the value of some asset-backed commercial paper conduits to which it provides liquidity. The company during the quarter purchased $850 million in commercial paper from the conduits, which cost it $12 million before taxes. The conduits, which typically issue short-term debt like commercial paper and then use the proceeds to invest in longer-dated, higher-yielding assets, have struggled in recent months as investors have shunned risky debt.