DALLAS – Texas Comptroller Susan Combs ended the state’s contract with Lehman Brothers Holdings Inc., after the venerable investment bank filed for bankruptcy protection earlier this week and was later acquired by Barclays PLC.
The Wall Street’s titan’s Lehman Brothers Inc. unit provided client and marketing services to the state’s TexPool and TexPool Prime initiatives.
“Investors are currently suffering the effects of one of the greatest crises of confidence in the capital markets in recent memory,” Combs said.
“Given Lehman Brothers declaration of bankruptcy, the fragile state of the capital markets and the heightened sensitivity of investors to adverse news, the continued affiliation of TexPool with Lehman Brothers is unacceptable.”
The state also said “any potential adverse news or performance of Lehman Brothers has no impact on the safety of [the] investments in either of the pools.”
Combs said she expects Lehman to transfer responsible for the services it provides to the pools to Federated Investors Inc., which advises the state on the portfolio, within 30 days
The state started the Texas Local Government Investment Pool, or TexPool, in 1989 to allow certain government entities to jointly invest their funds. A second portfolio, TexPool Prime, was started in late 2002.
Federated Investors has said both pools are “managed with a conservative bias”, in part to ensure they keep their AAAm rating, which is the highest principal stability rating.
“TexPool consists entirely of short-term government and government-agency securities. TexPool Prime owns the highest quality commercial paper,” the investment firm said. “Neither pool owns collateralized debt obligations or structured investment vehicles. And neither has direct exposure to subprime mortgages.”
In March, Standard & Poor’s affirmed its AAAm rating on the funds.
