Friday, November 7, 2008

State Steet Consolidated $6.2 bil of commercial paper from its conduits

The conduits generally sell commercial paper to third-party investors; however, we sometimes purchase commercial paper from the conduits. As of September 30, 2008, we held on our consolidated balance sheet an aggregate of approximately $7.82 billion of commercial paper issued by the conduits (including $1.63 billion purchased under the Federal Reserve Bank of Boston’s AMLF), compared to $212 million as of June 30, 2008, $292 million as of March 31, 2008, $2 million as of December 31, 2007 and $730 million as of September 30, 2007. For the third quarter of 2008, the highest total overnight position in the conduits’ commercial paper held by State Street was approximately $9.22 billion ($8.21 billion excluding purchases under the AMLF), and the average total overnight position for the same period was approximately $2.09 billion ($1.99 billion excluding purchases under the AMLF), or 7.7% of the conduits’ aggregate average commercial paper outstanding for the third quarter of 2008. Excluding AMLF-related purchases, the commercial paper we hold is purchased at current market prices, and is carried at fair value in trading account assets in our consolidated statement of condition. Holdings have been higher than the levels of commercial paper we have historically held, which is reflective of the continued illiquidity in the asset-backed commercial paper markets, particularly during the third quarter, and our desire to provide short-term stability to the conduits’ funding costs. Since the conduits were first organized, we have entered into contractual obligations, usually in the form of liquidity asset purchase agreements, to provide most or all of the conduits’ liquidity, by agreeing to purchase assets from the conduits at their book value upon the occurrence of certain events. Other institutions can and do provide contractual liquidity to the conduits, primarily through liquidity asset purchase agreements. As required by these agreements, we and the other institutions provide back-up liquidity in the event that the conduits cannot meet their funding needs through the issuance of commercial paper. In the event that maturing commercial paper cannot be reissued into the market by the conduits’ dealer group, we and the other institutions providing liquidity may be required to purchase portfolio assets from the conduits. State Street may also provide liquidity by purchasing commercial paper or providing other extensions of credit to the conduits. In addition, we may be required to purchase assets from the conduits in connection with certain events related to those assets. As of September 30, 2008, our commitments under these liquidity asset purchase agreements and back-up lines of credit totaled $25.22 billion. ....

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