State Street Corp. adds $610 million to stable value

State Street Corp., Boston, voluntarily contributed $160 million in January 2008 and an additional $450 million in the fourth quarter to stable value accounts to bring the accounts back to market level, according to an 8-K filed by the bank on Jan. 16.

The accounts are managed by subsidiary State Street Global Advisors.

Further, fixed-income liquidity and pricing issues in 2008 so negatively affected the market value of SSgA’s stable value accounts that “third-party guarantors considered terminating their financial guarantees,” leading SSgA to purchase about $2.5 billion of risky securities from the accounts, according to the 8-K.

Arlene C. Roberts, an SSgA spokeswoman, said the firm does not disclose the underlying investments of its stable value funds and that assets managed in such accounts represent considerably less than 1% of SSgA total assets. SSgA managed $13.9 billion in stable value funds as of Dec. 31, 2007, the most recent data the firm provided to Pensions & Investments.

Separately, the credit crunch dropped the value of some enhanced cash collateral pools managed by SSgA for securities-lending clients of its parent to below a net asset value of $1 per unit, according to the 8-K filing.

Securities-lending clients have a choice in the type of collateral pool that SSgA uses to manage the cash put up as collateral securities are borrowed, ranging from overnight settlement to registered money market funds to what SSgA labels enhanced cash, said Steven Meier, executive vice president and chief investment officer for global cash management strategies.

SSgA invests a portion of the enhanced cash collateral assets in traditional short-term money market instruments and in longer term unsecured debt and asset-backed securities, Mr. Meier said. The lack of a functioning secondary market for asset-backed securities has led to market value volatility that hurt the value of some SSgA’s enhanced cash collateral pools, said Mr. Meier.

Mr. Meier and Craig Starble, executive vice president and head of securities finance at State Street, said data were not available regarding how many enhanced cash collateral pools, how much money or how many institutional clients are affected by the valuation problems. According to State Street’s 8-K filing, the aggregate net asset value of the cash collateral pools was $113 billion as of Dec. 31.

Mr. Starble said the firm is meeting redemption requests on a $1 par level for investors that need to withdraw assets in the “normal course of business” — for example, if a pension fund needs cash to make benefit payments or for 401(k) participants who are moving investments into a new fund.

Clients that want to completely withdraw from State Street’s securities-lending program and remove their underlying investments are being asked to wait if they want an all-cash distribution, or to take part of their distribution in-kind as a unit of the collateral pool, Mr. Starble said. He said SSgA has not prevented anyone who wanted to withdraw from the funds from doing so.

Mr. Starble said discussions with clients in the enhanced cash collateral pools have been ongoing, but that the number who have actually elected to take a distribution that includes a unit of the collateral pool is “de minimus.”

“This is a market volatility issue, not a matter of the quality of the securities in the portfolio. We are comfortable with the quality of the underlying assets. There are no impaired securities in the portfolio, no sub-prime mortgage exposure and no defaults,” said Mr. Starble.