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State Street Double Whammy

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State Street got hit with a one-two combination of bad news today. The Boston Globe reported that the State Street Limited Duration bond Fund lost about 37 percent of its value during the first three weeks of August. Meanwhile, the Times of London woke everyone up early this morning with a report that State Street has $22 billion of exposure to asset-backed commercial paper conduits, off-balance sheet vehicles that have led to troubles for rival financial institutions during the recent credit market turmoil.
It’s a terrible mix of news. The losses in the supposedly conservative bond fund would place it among this summer’s worst casualties. "Both the level of underperformance and the degree of market turmoil are unprecedented in our 30-year history as a fixed income manager," State Street’s Sean P. Flannery has told clients in a letter.
See? It's totally not their fault. These things never happen. Except, you know, when they do.
On the conduit thing, State Street has credit lines to at least six of these off-balance sheet vehicles, which make up or 17 per cent of its total assets, according to the Times. The Times says its reporting is based on regulatory filings. “That proportion makes State Street the most highly exposed bank to conduits among its European and American peers,” the Times reports.
Update 11:23: State Street shares fell nearly 3% this morning.
Further fiasco[Boston Globe]
State Street bank has highest exposure to conduits [The Times]


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