State Street Has $22 Billion Conduit Exposure -- TimesOnline

Boston-based institutional money manager State Street has a $22 billion exposure to asset-backed commercial paper conduits, the London Times reported Tuesday. The bank has credit lines to at least six conduits, collectively representing 17% of its total assets. Conduits are packaged retail and commercial loans financed by short-term debt raised in the commercial paper market. State Street has a greater exposure to conduits than any of its American or European peers. Investors are growing increasingly apprehensive that banks will have to fund debt from their own balance sheets if the vehicles cannot be sold on their maturing paper. In July, German rival IKB, which had credit lines worth 15% of its assets, had to accept emergency funding for its conduit. Last week, shares of HBOS plc lost nearly 4% after it announced it would finance Grampian Funding, its $35 billion conduit, itself until the commercial paper market stabilizes. Also last week, Edward Cahill, head of European CDO operations at Barclays Capital, resigned. The $8.5 billion Raptor hedge fund, part of Tudor Investment Corp., has lost 8% on the year, most of it in August. "Some of our core longs were simply crushed," said Raptor's fund manager, James Pallotta. Virginia Parker of Parker Global Strategies: "We've had an extraordinary withdrawal of liquidity from the credit markets that's affected every type of paper. The nervousness from the credit markets is spilling over into the equity markets."

Sources: Reuters, TimesOnline, Bloomberg
Commentary: Barclays, State Street, Blackrock Claim Strong AUM Growth • State Street's Two New ETFs: International Small Cap and World ex-US • State Street to Buy Investors Financial for $4.5b in Stock, A 38% Premium
Stocks/ETFs to watch: STT. Competitors: BK, C, NTRS. ETFs: RKH, KBE, KCE
Earnings call transcript: State Street Q2 2007

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