Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
U.S. Money Fund Exposure to European

U.S. Money Fund Exposure to European

Ratings: (0)|Views: 10 |Likes:
Published by feaoce
U.S. Money Fund Exposure to European Banks Remains Significant
U.S. Money Fund Exposure to European Banks Remains Significant

More info:

Categories:Types, Business/Law
Published by: feaoce on Sep 19, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

09/19/2011

pdf

text

original

 
Research Highlights
•Samplebasedon10largestU.S.primeMMFs,currentlyrepresenting$755billion(i.e.45%)of$1.66trillionintotalU.S.primeMMFassets.•Recentbankexposuretrends(%oftotalMMFassets)—Figure1:
ο
Europe:50.2%(stable)
ο
France:14.8%(increasing)
ο
Italy:0.8%(declining)•MMFexposurestoindividualbanks(%totalMMFassets)—Figure2:1.DeutscheBank:4.5%2.BNPParibas:4.1%3.Rabobank:3.8%•Banks’useofMMFfunding(%ofinstitution’sdepositsandshort-termliabilities)—Figure3:4.Rabobank:6.7%5.Westpac:6.2%6.Natixis:5.7%
U.S. Money Fund Exposure to EuropeanBanks Remains Signifcant
Macro Credit Research
June 21, 2011
www.ftchratings.com
Analysts
Macro Credit Research 
Robert J. Grossman
Kevin D’Albert
+1212908-0823kevin.d’albert@fitchratings.com
Martin Hansen
+1212908-9190martin.hansen@fitchratings.com
Fund and Asset Manager Group 
Viktoria Baklanova
+1212908-9162viktoria.baklanova@fitchratings.com
 
Related Research
Summary
U.S.primemoneymarketfunds(MMFs)continuetohavesizableexposurestoEuropeanfinancialinstitutions,arelationshipwhichcouldaffectbothsectors.MMFsareapotentialchannelforeurozonecreditmarketvolatility.ForEuropeanbanks,alossorreductioninMMFfundingcouldcreatenegativeperceptionsaboutaninstitution’sfinancialstrength.ThisreportanalyzesMMFportfoliotrendsthroughMay31,2011,andupdatesFitchRatings’priorstudy,whichwasbasedonresultsfromtheendofFebruary.Fitch’sanalysisisbasedonasampleofthe10largestprimeMMFs,representing45%ofthetotalprimefunduniverse,andfocusesontheiraggregateexposuretobanks’certificatesofdeposit(CDs),commercialpaper(CP),asset-backedCP(ABCP),repurchaseagreements(repos),andothershort-termnotesanddeposits.Overthepastthreemonths,MMFexposuretoEuropeanbankshasbeenstable,atroughly50%oftotalMMFassets,inclusiveoftimedepositsandnotes(seenoteonpage3).AggregateexposuretoFrench,German,andU.K.banksremainedconstantat30%oftotalMMFassets,althoughtherewassomevariationintrendsacrosscountries.Germanbankexposuredecreasedfrom8.2%to6.3%ofMMFassets,whileFrenchbankexposurerosefrom13.3%to14.8%overthesameperiod.U.K.bankexposurealsoincreased,from8.6%to9.7%ofMMFassets(seeFigure1).Sincepeakingin2009,MMFexposurestoItalianandSpanishbankshavecontinuedtodeclinesteadily.ItalianbankexposureroughlyhalvedsinceFebruary,fallingfrom1.5%to0.8%oftotalMMFassets.Spanishbanksremainedsteadyat0.2%oftotalassets,asMMFshadalreadyreducedthisexposuresignificantlyin2010.The15largestglobalbankexposures,asagroup,comprisemorethan40%oftotalMMFassets(seeFigure2).Ofthetop15,thereare10Europeaninstitutionsthatinaggregateaccountformorethan30%oftotalMMFassets.ThefourFrenchbanksamongthetop15(BNPParibas,CreditAgricole,SocieteGenerale,andNatixis)representroughly12%oftotalMMFassets.
051015202H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 Feb-11 May-11France Germany ItalyandSpain UnitedKingdom
(%)
Figure 1: Exposure to Banks in "Core" Countries Remains Elevated
(%ofTotalMMFAssetsUnderManagement)
Sources:FitchRatings,MMFpublicWebsites,SECfilings.
 
2 June 21, 2011U.S. Money Fund Exposure to European Banks Remains Signifcant
TheotherdimensionoftherelationshipbetweenbanksandMMFsisMMFsasasourceofshort-termbankfunding.Ofthetop15MMFexposurestoglobalbanks,MMFfundingaccountsforatleast3%oftotaldeposits,moneymarket,andshort-termfundingforseveninstitutions.ThisfigurewouldbehigherifincludingthefulluniverseofprimeMMFsbeyondthetenlargestfunds,aswellasotherprivatelymanagedliquiditypoolsandEuropeanU.S.dollar-denominatedmoneyfundswithsimilarinvestmentprofiles.WhiletheoverallfundingrelianceonMMFsmightnotappearsignificant,thepotentialwithdrawalofMMFfundingcouldcreatenegativeperceptionsaboutaninstitution’sfinancialcondition.
A Regulatory Conundrum
Systemicinterconnectednesscomplicatesthemanychallengesthatregulatorsfaceintheireffortstoenhancethesafetyandstabilityofthepost-crisisfinancialsector.Forexample,newBaselIIIliquidityratioscreateincentivesforbankstoreducetheirrelianceonshort-termliabilitiesbyassumingthatunsecuredfundingoflessthan30daysrunsoffcompletelyinastressscenario.Effortsbybankingregulatorstolengthenthedurationofbanks’liabilitiescreateanapparenttensionwithsecuritiesregulators’objectivestoreducethematurityprofileofMMFs’investmentportfolios.Morespecifically,Rule2a-7revisionsreducetheaveragematurityofMMFinvestmentsfrom90daysto60daysandintroduceminimumdailyandweeklyliquidityrequirements,creatingdisincentivesforMMFstoinvestinlonger-datedbankCDandCPissuance.
Figure 2: Largest MMF Exposures —Financial Institutions
(%ofTotalMMFAssetsUnderManagement,AsofMay2011)
Issuer/Counterparty CD CP RepoOther(e.g.Notes) TotalDeutsche Bank
2.1 0.3 2.2 0.0
4.5BNP Paribas
3.2 0.2 0.6 0.0
4.1Rabobank
3.1 0.7 0.0 0.0
3.8Barclays
0.8 0.3 1.9 0.0
3.0Credit Agricole
2.4 0.1 0.1 0.4
3.0
Westpac 0.5 1.7 0.0 0.8
3.0Societe Generale
1.2 0.9 0.3 0.6
3.0ING
2.0 0.5 0.4 0.0
2.9
RoyalBankofCanada 1.4 0.4 0.1 0.6
2.5
BankofNovaScotia 2.3 0.1 0.0 0.0
2.4Royal Bank of Scotland
1.4 0.1 0.9 0.0
2.4
JPMorganChase 0.0 0.3 1.4 0.6
2.3
NationalAustraliaBank 2.3 0.0 0.0 0.0
2.3Natixis
1.2 0.8 0.0 0.0
2.1UBS
1.3 0.0 0.7 0.0
2.0
Note:Totalsmayvaryduetorounding.Europeanbanksareboldedabove.Source:FitchRatings,MMFpublicWebsites,SEClings.
Figure 3: Bank Reliance on MMF Funding 
(AsofMay2011)
Issuer/CounterpartyCD, CP, Repo, Other/ Financial Institution's Depositsand Short-Term Liabilities (%)
a
Rabobank
6.7Westpac 6.2
Natixis
5.7NationalAustraliaBank 4.2
Deutsche Bank
3.8BankofNovaScotia 3.8RoyalBankofCanada
3.3
Societe Generale
2.9
BNP Paribas
2.6
ING
2.5
UBS
2.3
Barclays
2.2
Credit Agricole
1.9
Royal Bank of Scotland
1.5JPMorganChase 1.3
a
Totaldeposits,moneymarket,andshort-termfunding.Note:Europeanbanksareboldedabove.Source:FitchRatings,MMFpublicWebsites,SEClings.
Drivers o U.S. MMF Exposure to European Banks
ThereareseveralmacrofactorswhichhelpexplainthesignificantexposureofU.S.MMFstoEuropeanbankissuers.
>
EuropeanBanks’NeedforDollarFunding:Dollar-denominatedassetsofEuropeanbankshavegrownrapidlyoverthepastdecade,fromapproximately$2trillionin1999tomorethan$8trillionin2008.SeeMarch2009BankforInternationalSettlementsQuarterlyReview“U.S.DollarMoneyMarketFundsandNon-U.S.Banks”).U.S.primemoneyfundsprovideanaturalsourceforshort-termdollarfinancing.
>
NarrowingInvestmentOpportunitiesforMMFs:Duringthefinancialcrisis,industryconsolidationandthefailureofseveral
financialinstitutionsreducedtheglobaluniverseofpotentialMMFinvestmenttargets,particularlyintheU.S.(e.g.BearStearns,Countrywide,LehmanBrothers,Wachovia,andWashingtonMutual).Additionally,sincethebeginningof2007,ABCPoutstanding
hasdroppedfrom$1.2trillionto$380billion.Finally,short-termTreasuryyieldsarehoveringnear0%.EuropeanbankCD
exposurehashelpedtofilltheresultingvoid.
 
 June 21, 2011 3Fitch Ratings
Background on Fitch Study
>
ThisresearchstudyisintendedtoprovidemarketparticipantswithinformationonMMFexposurestoEuropeanbanks,anddoesnotcommentspecificallyonFitch-ratedMMFs.Assuchthereportdoesnotatpresenthaveanyratingimplications.
>
Forthemostrecentobservationperiod(i.e.May31,2011),theMMFsinFitch’ssamplerepresentroughly$755billion,or45%oftheInvestmentCompanyInstitute’sestimateofapproximately$1.66trillionintotalU.S.primeMMFassetsundermanagement.
>
Thesamplesetisbasedonpublicfilingsfromthe10largestprimeinstitutionalandretailMMFs,asmeasuredbyassetsundermanagement,asofeachobservationperiod.Thus,insomecasestheMMFssampleddifferslightlyfromperiodtoperiod.Becausethisanalysisisbasedonaggregateddataforthe10MMFssampled,itdoesnotcapturepotentialdifferencesinexposureprofilesacrossindividualfunds.
>
MMFexposuretobanksencompassesthefollowinginstrumenttypes:CDs,CP,ABCP,repos,andcorporatenotes.Bankexposuredataforforeignsubsidiariesisgenerallyconsolidatedwithinthebankinggroup’shomejurisdiction.Bankexposuredataincludesstate-controlledfinancialinstitutions,whereapplicable.
>
Inordertomaintaindataintegrity,Fitchperiodicallyreviewsrawexposure-levelholdingsdataand,ifwarranted,mayreclassifyspecificexposures(e.g.byassettype,industrysector,counterparty,orcountry).Reclassificationand/orrevisionstothedatasetcanresultingenerallyminorchangestothehistoricaltimeseriesofMMFexposures.
>
Becauseofboththeinclusionofnewinstrumenttypes(e.g.timedepositsandcorporatenotes)andexposurereclassifications,historicaldatainsomeinstanceschangedslightly,relativetopriorupdatesofthisstudy.Forexample,Fitch’spriorstudy(published
inMarch2011)providedatotalEuropeanbankexposurefigureof44.3%formonth-endFebruary.Inthiscurrentstudy,the
correspondinghistoricalfigureformonth-endFebruaryis49.6%,a5.3%increaseaccountedforbyreclassifications(0.9%)andtheinclusionofotherinstrumenttypes(4.4%).
>
Theperiodofobservationcoversninedistinctsemiannualperiods,month-endFebruary2011,andmonth-endMay2011.NotethatfinancialreportingdatesoftenvaryacrossMMFs.FitchthereforehasappliedadegreeofjudgmentincategorizingindividualMMFfilingsintotheappropriatesemiannualbucket.
>
MostofthehistoricaldataincludedinthisstudyiscomparabletoareportpublishedbyFitchinDecember2010.(See“U.S.MoneyMarketFunds:RecentTrendsinExposuretoEuropeanBanks.”)However,second-half2010dataintheDecember2010reportwascompiledasofOctober2010,andreflectsaninterimobservationforthatperiod.Thesecond-half2010dataprovidedinthisreporthasbeenupdatedandrevisedtoreflectMMFholdingsasofNovember/December2010,resultinginslightdifferenceswiththesecond-half2010figurespublishedintheDecember2010report.

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->