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    Fed Made State Street Profitable as Middleman


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    Posts : 34
    Join date : 2011-08-10

    Fed Made State Street Profitable as Middleman

    Post  hurricanemaxi on Wed 24 Aug 2011, 11:19 am

    State Street Corp. (STT) and JPMorgan Chase & Co. (JPM) profited during the financial crisis by borrowing $200 billion almost risk-free from the Federal Reserve under a program intended to rescue money-market mutual funds.

    The Fed lent State Street a total of $89 billion to buy securities from the funds in 2008 and 2009 after the credit crisis triggered by the collapse of Lehman Brothers Holdings Inc., according to Fed data compiled by Bloomberg News from information released in response to Freedom of Information Act requests, related court orders and an act of Congress. The central bank also guaranteed against losses on the short-term notes as long as they met eligibility guidelines.

    State Street, based in Boston, held the securities to maturity and collected a return of $75.6 million, according to regulatory filings. JPMorgan borrowed and bought $111 billion in securities under the same program, records show. While New York- based JPMorgan hasn’t disclosed its profit from the transactions, it would have been about $93 million at the same rate of return State Street reported.

    “The program was enacted without any bidding process and awarded on the basis of whoever was there at the moment,” said Joseph R. Mason, a finance professor at Louisiana State University in Baton Rouge. While the banks’ return may have been appropriate, the lack of competitive bids is troubling, Mason said. He noted that for State Street, JPMorgan and other participants, “there was virtually no risk.”
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