First, Lehman Brothers’ stock tanked and then AIG. Now, shares of asset managers like State Street, Bank of New York Mellon and Northern Trust went on a wild ride Thursday because of worries about money market fund redemptions.
The Reserve Primary Fund, the oldest money market fund in the United States, said earlier this week that the net asset value dropped below US$1 per unit as a result of it holding Lehman debt. (In the United States, money market funds are priced at $1 whereas they are priced at $10 in Canada.) And on Thursday, Great-West Lifeco’s Putnam Investments announced it closed its institutional money market fund because of redemption pressures.
State Street was hit the hardest. Its shares dropped more than 50% to $29.09 earlier in the trading session before bouncing back to close down $5.75 to $59.
The company says the net asset value of its funds has never declined below $1 and none of them have unsecured exposure to AIG, Lehman, Washington Mutual, Wachovia, Merrill Lynch or Morgan Stanley.
“State Street for its own account does not hold any equity positions in unaffiliated financial institutions,” says a statement, which added that the company is well capitalized.
Bank of New York Mellon’s stock was also lower, off $1.53 to $31.57. It had fallen to as low as $21.33. And shares of Northern Trust closed higher, rising $4.73 to $75.45 after dropping to $47.89 earlier in the day.
Reports that the U.S. government might create an entity that will take over banks’ bad debt helped asset managers’ stocks and the overall market recover.
The entity would be similar to Resolution Trust Corp., which was set up during the savings and loan crisis of the late 1980s and early 1990s.
The Dow Jones Industrial Average jumped 410 points to close at 11,019.69 while the S&P/TSX composite index rose 187 points to finish at 12064.57.