Reply #55: State Street shares cut in half after company outlines new risks

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http://money.cnn.com/news/newsfeeds/articles/djhighlights/200901201119DOWJONESDJONLINE000485.htm

State Street in a filing Friday updated its risk factor disclosures, which helped fuel the sell-off in the shares.

The company said it may be exposed to customer claims, financial loss, reputational damage and regulatory scrutiny as a result of transacting purchases and redemptions relating to the unregistered cash collateral pools underlying its securities lending program "at a net asset value of $1.00 per unit rather than a lower net asset value based upon market value of the underlying portfolios."

"This relates to the company's decision to protect its clients in the securities lending business from loss related to their cash float," said Ladenburg Thalmann analyst Richard Bove in a research note. "The assumption had been that State Street had paid out the monies in question and no new funds would be exposed. This new risk provision raises questions as to whether this assumption is correct or not."

State Street warned it could recognize a material charge to earnings and see its capital ratios hurt if all or a significant portion of the unrealized losses in its portfolio of investment securities "were determined to be other-than- temporarily impaired."

Finally, its business activities, including the unconsolidated asset-backed commercial paper conduits its administers, expose it to liquidity and interest- rate risk.

I'm wondering if State Street had Lehman commercial paper exposure. Don't know.