In a statement, the Boston-based financial services firm said it functions as collateral manager for approximately $6 billion in CDO assets, but it does not hold any investments itself. It is not the underwriter or trustee to any of the CDO assets, the firm said. The statement came in response to reports that Standard & Poor’s had said that the trustee of a $1.5 billion collateralised debt obligation (CDO) managed by State Street Global Advisors had started selling assets, apparently starting a process of liquidation.
At the same time, S&P dropped its ratings on the State Street-managed Carina CDO by as much as 18 notches, to “CCC-minus” from top “AAA” ratings. Last month, S&P put 590 ratings on 176 CDOs on watch for a possible cut, affecting $20.6 billion in debt, according to Reuters.
Senior investors must decide whether to liquidate the collateral and the impact of market declines “resides directly with the note holders of the CDO,” State Street said in a written statement released Friday.“We’re not playing a role in the liquidation,” State Street spokeswoman Arlene Roberts told Reuters. “That’s up to the investors.”
In response to the reports, State Street shares fell as much as 3% in early afternoon trading Friday, on concerns about its exposure to CDOs and even less transparent structured investment vehicles, (SIV), according to the Reuters report.
Bank of America Securities c redit analysts at said in a note to clients this week they expect heftier asset write-downs tied to CDOs as “valuation uncertainty and further market erosions will imply continued increased losses.”
State Street has become embroiled in the problems plaguing financial institutions from the surge in defaults on subprime mortgages that led to this year’s credit crunch. The company was hit last month with three pension-related lawsuits, over losses suffered from exposure to subprime mortgages (See Two More Suits Filed Over State Street Bond Fund Losses ).
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