Tempe, along with dozens of government entities across the state, could lose millions of dollars in investments with the unprecedented collapse of Lehman Brothers earlier this month.
Lehman Brothers, a financial-services firm, filed for the largest bankruptcy in U.S. history on Sept. 15.
Arizona governments, cities, counties and other entities stand to lose millions in Lehman Brothers investments from the financial giant’s fall, Arizona State Treasurer Dean Martin said.
But cities, counties and other entities will likely still make a profit in their investments, Martin said.
About 140 government entities around the state pool their money for the Office of the Arizona State Treasurer to invest, he said. The money is pooled together for higher rates of return on investments.
Tempe’s stake in Lehman Brothers is about $3.7 million, as part of its $287 million investment in the Local Government Investment Pool said Tempe Deputy Financial Services Manager Tom Duensing.
But he said Tempe is more likely to lose between $730,000 and $1.5 million than its full investment, Duensing said, as it is improbable that the stake in Lehman Brothers would be a total loss.
“That’s really the exposure we’re looking at,” he said. “It won’t impact operations … at the city at all.”
Tempe invests its idle money — funds not actively in use by the city — in the Local Government Investment Pool, a service of the state treasurer, Duensing said.
“We don’t like it,” he said of the loss. “But you know, it’s part of the risk you have when you do investments like this.”
Martin said Tempe has been a part of the same investment pool for about five years, during which the city has made about a 19 percent compound interest rate return.
Since the credit crunch became apparent about a year ago, the Office of the Arizona State Treasurer has invested much more money in government securities, instead of the financial sector, Martin said.
Currently, more than 70 percent of the approximately $12 billion the office invests is in U.S. treasuries, Martin said.
“Globally, U.S. treasuries are considered the safest investments on the planet,” he said. “Will the U.S. government still exist? That’s considered the safest risk on the planet.”
Duensing said the Lehman Brothers collapse will likely not have an effect, by itself, on Tempe’s overall investment strategy.
Tempe’s investment priorities are safety, liquidity and yield, in that order, he said.
Tempe is concerned with economic events at the national level and will continue to adjust its investment practices for market fluctuations, he said.
“Like everyone else, we’re just kind of in a wait-and-see mode,” Duensing said.
Reach the reporter at matt.culbertson@asu.edu.
