State Street Shares Rattled by Credit Worries

Tuesday, 28 Aug 2007 | 11:50 AM ET

State Street shares fell sharply Tuesday on worries about the company's more than $20 billion in commitments to asset-backed commercial paper programs.

State Street recently said in U.S. regulatory filings that it administers four, third-party owned asset-backed commercial paper programs, or conduits. Banks rely heavily on these conduits for cheap, short-term funding, but if they cannot continue to access this debt they could face a credit squeeze.

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At the end of June, State Street disclosed nearly $29 billion in off-balance-sheet conduit assets. The Boston-based bank does not hold any equity interest in the conduits.

However, State Street is exposed to the conduits because it provides back-up lines of credit to them. Its commitment under liquidity asset purchase agreements and back-up lines of credit totaled about $28 billion at the end of June, according to the company's financial statements.

State Street has said potential losses, if any, from these conduits' activities are not expected to have a material impact on its results. The company was not available for comment.

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