GLOBAL - State Street Corp. has been downgraded by rating agency Fitch, which cited the volatility of the company’s business mix and the challenges of business expansion.

Fitch Ratings said it lowered the long-term rating of the Boston-based group and its primary operating subsidiary State Street Bank and Trust Co. to 'AA-' from 'AA'. The rating outlook was revised to stable from negative.

“While Fitch recognizes that management has and continues to develop plans to address revenue and expense issues, future earnings are expected to reflect the inherent volatility of State Street's business mix and the challenges associated with its business expansion efforts,” Fitch said in a statement.

“We continue to be one of the best capitalised banks in the US with an extremely strong franchise,” said State Street spokeswoman Hannah Grove.

Fitch also said the firm’s operating environment will be more challenging than “the near-optimal environment of the late 1990s and early 2000s”.

Fitch said that some of State Street’s expansion has worked, such as the acquisition of Deutsche Bank’s Global Securities Services. Others, such as Bel Air Investment Advisors, have not.

It said State Street's earnings mix also contributes to volatility. “While State Street has seen strong growth in investment management and servicing fees, it also derives a lot of income from foreign exchange trading and securities lending – whose profitability depends on volumes and market conditions.”

Fitch added that it believes that State Street remains a “quality franchise with relatively low risk”.