Four off-balance sheet conduits which State Street (NYSE:STT) controls are under the microscope, as concerns about credit risk continue to linger. The conduits issue asset backed “commercial paper”, a short term investment vehicle which investors can purchase to stake a claim on future cash flows (similar to mortgage backed securities). However, instead of being backed entirely by sub-prime mortgages, the securities are backed by a combination of credit card, auto, and prime mortgage debt. Standard & Poor’s continues to assure investors that State Street’s debt ratings are unaffected by the conduits.
This news, combined with news about STT’s Limited Duration Bond Fund (which holds sub-prime asset backed securities) contributed to a 4% decline in share price yesterday.