Cash contribution removes redemption restrictions
08 July 2010 Boston
Image: Shutterstock
State Street announced yesterday that it recorded a second quarter 2010 after-tax charge of USD251 million, including a related cash contribution to certain common and collective trust funds managed by State Street Global Advisors ("SSgA") that engage in securities lending (the "SSgA lending funds"). The one-time USD330 million cash contribution establishes a market-based net asset value ("NAV") per unit of the collateral pools held by the SSgA lending funds of USD1.00 as of June 30, 2010. The cash contribution also enables SSgA to remove, as of August 2010, the redemption restrictions from the SSgA lending funds and mitigates potential liability concerns. Additionally, State Street accrued USD9 million of related costs, which are included in the charge.
State Street's securities lending operations comprise two components: the SSgA lending funds, referenced above, with a broad range of investment objectives that are managed by SSgA; and an agency lending program for third-party investment managers and asset owners, the collateral pools for which are referred to as agency lending collateral pools. Redemption restrictions were instituted with respect to certain SSgA lending funds and agency lending collateral pools in the fall of 2008 during the disruption in the financial markets. State Street has identified potential inconsistencies with its implementation of those redemption restrictions applicable to certain agency lending collateral pools. The Company has also established a reserve of USD75 million, reflected in the charge described above, to address these issues.
For its agency lending program clients, State Street today announced a plan to increase client access to liquidity. By the end of 2010, State Street intends to separate agency lending collateral pools, with total net assets of USD51.6 billion and a weighted average NAV of USD0.989 as of June 30, 2010, into two different pools. One pool will have complete liquidity, and the other pool, holding primarily longer-dated securities, will be subject to continued restrictions on redemptions.
Commenting on these actions, Joseph L. Hooley, State Street's president and chief executive officer, said, "Today's announcement demonstrates our commitment to resolving the challenges resulting from the market turmoil over the past several years."
State Street's securities lending operations comprise two components: the SSgA lending funds, referenced above, with a broad range of investment objectives that are managed by SSgA; and an agency lending program for third-party investment managers and asset owners, the collateral pools for which are referred to as agency lending collateral pools. Redemption restrictions were instituted with respect to certain SSgA lending funds and agency lending collateral pools in the fall of 2008 during the disruption in the financial markets. State Street has identified potential inconsistencies with its implementation of those redemption restrictions applicable to certain agency lending collateral pools. The Company has also established a reserve of USD75 million, reflected in the charge described above, to address these issues.
For its agency lending program clients, State Street today announced a plan to increase client access to liquidity. By the end of 2010, State Street intends to separate agency lending collateral pools, with total net assets of USD51.6 billion and a weighted average NAV of USD0.989 as of June 30, 2010, into two different pools. One pool will have complete liquidity, and the other pool, holding primarily longer-dated securities, will be subject to continued restrictions on redemptions.
Commenting on these actions, Joseph L. Hooley, State Street's president and chief executive officer, said, "Today's announcement demonstrates our commitment to resolving the challenges resulting from the market turmoil over the past several years."
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