The stock market has not yet lost its capacity to be shocked. State Street – among the largest providers of stodgy but dependable custody services, and one of the “too big to fail” banks that first received federal bail-out money – was supposed to be safe. On Tuesday morning, however, its shares halved.
The rout followed fourth-quarter results that lowered this year’s earnings expectations. Investors also had the long weekend to digest a filing with the Securities and Exchange Commission. The 31-page form presented a list of risks that investors should consider, in effect bringing to their attention a variety of novel ways in which the company could lose money. State Street may be forced to bail out more money market funds that have “broken the buck” – that is when the net asset value of a cash vehicle falls below par. There is also a danger that mark-to-market losses on asset-backed securities may have to be recognised if impairments prove to be more than temporary. Unrecognised losses on instruments that State Street intends to hold to maturity now stand at $5.9bn.
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