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In the wake of a sharp drop in its share price last week amid rumors State Street might have to step in to support some $29B in four special investment vehicles that hold asset-backed securities off its balance sheet, and a report that a State Street fund with subprime holdings had lost more than one-third of its value, Barron's revisited the securities-processing and fund firm. "While we cautioned that capital-market problems might constrain it, our bullish feature on State Street didn't anticipate the depth of Wall Street's credit squeeze or grasp State Street's off-balance-sheet commitments," Barron's said, referring to the bullish piece it ran on June 25. The stock was then at $68 and it estimated the shares had the potential to reach $85. They closed Friday at $61.36, after dropping as low as $59.48 given fears that those portfolios may have undisclosed losses. Nevertheless, Barron's says it doesn't see any reason to sell, and thinks the shares still hold value, noting that State Street denied the rumors and maintains that it has had no problem selling commercial paper backed by the conduits, and ratings agencies have reaffirmed their investment-grade ratings on the conduits. "Scrutinize State Street -- don't sell it," says Barron's.

Sources: Barron's
Commentary: State Street's Two New ETFs: International Small Cap and World ex-USTightening of the Liquidity Noose
Stocks/ETFs to watch: STT, KRE, RKH
Competitors: BK, C, NTRS
Earnings call transcript: State Street Q2 2007 Earnings Call Transcript

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Source: Hold On to State Street -- Barron's