"Money funds get bailouts to stem run: 'Enhanced cash' suffers big drains" writes FinancialWeek. The article reviews the GE Enhanced Cash Trust price decline, outflows in "enhanced cash" funds, and some bailouts in money market funds. "With enhanced-cash, Libor-plus and ultrashort bond funds, a few bad apples may ruin the party for everybody. This is a serious blow to the asset segment," it quotes Peter G. Crane.
BusinessWeek interviews Crane Data's Peter Crane in "Money-Market Funds: A Safety Check". This week's issue features a Q&A with the publisher of Money Fund Intelligence. Crane tells BW, "There has been all of this Sturm und Drang over the possibility of losing a penny on the dollar. Everything the fund industry has done to date shows it will protect a fund's net asset value come hell or high water. See also Fox Business' "Experts Say Money Market Funds Still Safe for Mom and Pop" and BankRate.com's "How safe is your money fund?"
MarketWatch.com's Jonathan Burton writes about "Mounting concern about money-market funds: Investments seen as safe and secure face threat from bad debt holdings". "There's no such thing as a dangerous money fund," the article quotes our Peter Crane, president of CraneData.com. "These types of problems have occurred in money funds before, and every time the funds adjust and adapt.... Nowadays, signs point to lower interest rates, taking pressure off money funds that hold higher-quality investments, such as Treasury and government agency bonds, because these top-rated assets may actually get a boost from declining rates." Also, see MarketWatch's "Advisers warn against dumping money-market funds".
Barrage of Money Market Funds Buying Out or Shielding SIV Stories. Numerous stories on money market funds taking action to protect or remove their troubled SIV holdings hit today, including a front page one in USA Today, "Money market funds at risk?". The article says Bank of America "set aside $600 million to cover potential losses in its [Columbia] money market funds [$300 million] and an institutional cash fund [$300 million]," which is "not technically a money fund". (We assume the latter is the mammoth $40 billion plus Columbia Strategic Cash, or 'StratCash', an "enhanced cash," "3c-7" private placement fund.) The article also clarifies that Legg Mason "set up a $238 million line of credit for two money funds" and "invested $100 million to buoy an offshore money fund." The New York Times, on page 1 of the Business section, writes "Investor Safe Haven Becomes a Concern. It reveals that Wachovia may end up suffering as little as $5 million damage on its bailout, and "perhaps nothing". (The Times' chart incorrectly labels a surge in money assets as retail, but this should be institutional.) Associated Press writes, "Money funds set aside cash for trouble but it's unlikely a fund will fail, observers say". AP's article says, "Peter Crane, president of Crane Data LLC, which tracks money market mutual funds, says he doesn't believe this will wind up hurting the average money market client." Finally, The Washington Times writes "Firms prop up money-market funds".
WSJ Says "SEI, Rival Money Funds Go on Offense to Avoid 'Breaking the Buck'". The article quotes Money Fund Intelligence, saying "2007 is beginning to rival 1994's derivative crisis as the most dangerous event" in money fund history. It discusses credit enhancements sought by SEI, STI and others to protect SIV holdings. SEI chief executive Alfred West said, "We understand that others in our industry are taking similar action." (See our News brief yesterday on SEI's "Capital Support Agreements".) The Journal adds, "About 5% of prime money-market mutual-fund assets have SIV-related investments, according to estimates last week from Bank of America analyst Michael Hecht.
"Interest Rates Defy Fed's Recent Cuts" Writes The Wall Street Journal. The article says rates haven't fallen along with the Fed's 75 basis points in rate cuts so far. "That's fine with savers. Average yields on money-market mutual funds, for example, whose yields typically move in line with changes in the Fed funds rate, are hovering at 4.76%, compared with 5.06% in mid-September -- roughly half the amount they'd be expected to drop, says Peter Crane of Crane Data LLC".
"Money-Market Funds Get a Boost From Bank Portals" Says U.S. Banker. The November issue of U.S. Banker magazine contains an article entitled "Money-Market Funds Get a Boost From Bank Portals". The monthly publication quotes Peter Crane and Crane Data statistics extensively on the growth of institutional money funds, the advantages of institutional money funds during falling rate scenarios and on the growing use of online money market trading portals by banks. "Of the 16 portals now in the online money-fund supermarket, at least six are affiliated with banks, including Bank of New York, Citigroup, Comerica, LaSalle, PNC and U.S. Bancorp. Crane expects two more banks will soon join them: UBS and Wachovia," quotes the U.S. Banker article. The piece also quotes CacheMatrix's George Hagerman, "The amount the bank gets paid usually ranges from five basis points to 12 basis points, with an average of about seven". Marianne Bamonte of LaSalle's MoneyMarketsExpress portal (whose team was already integrated with Bank of America's at AFP) adds that money fund portals were "a hole in the suite of corporate-client services".
"Managers of money funds may take the hit" writes Saturday's LA Times. Tom Petruno says in his "Market Beat" column, "Now we're reminded that the free lunch concept extends to money market mutual funds.... Although there's no government guarantee on money funds, some fund management companies in recent months have demonstrated that there's an implicit guarantee against loss on the funds, even though the companies can't officially say as much." It quotes our Pete Crane, "Investors obviously believe they have nothing to fear in money funds. Assets have surged this year to record levels. That has given fund managers more breathing room to wait out the credit mess, Crane said." Look for more on current and historical bailouts in the pending November issue of Money Fund Intelligence.