Moody's wrote recently that, "SunTrust's Sale of Money Fund Assets to Federated Reflects Credit Negative Industry Consolidation." Author Henry Shilling says, "The definitive acquisition agreement on 16 July between Federated Investors, Inc. and SunTrust Banks, Inc. will add $17 billion to Federated's money market management business, currently $260.5 billion. The sale will effectively remove SunTrust from the business of managing constant net asset value (CNAV) money funds when the deal closes around year-end. The transaction reflects the continuing consolidation of the money market fund industry, which is credit negative. With the top 20 management firms accounting for 91% of money market assets, systemic risk is elevated."
Shilling continues, "The financial crisis and recent amendments to Rule 2a-7 governing the operation as well as investment of money market funds have increased the costs of managing money funds. On top of that, the management, legal, and operational challenges of money funds have risen. And finally, money market fee income and margins have been shrinking because of low interest rates and fee waivers. Consequently, the attractiveness of the business for management organizations lacking sufficient scale and proper infrastructure is diminished. We expect these changes to lead to further exits from the money market fund business."
The dour piece adds, "The adoption and implementation this year of various amendments to Rule 2a-7 have mitigated the risk of fund runs. But in our view, and as noted by the Securities and Exchange Commission in January 2010, they do not eliminate the susceptibility of money market mutual funds to runs.... [But] with fewer but larger players, there is a higher likelihood that management firms may respond in unison to adverse credit, market, and/or liquidity events by withholding support for their funds. In doing so, the otherwise unfavorable business or reputational consequences for individual management companies would be limited. However, this could lead to fund runs, such as in September 2008. In the absence of governmental intervention, fund runs have a destabilizing effect on financial markets."
A press release entitled, "Citibank Online Investments now offers Money Market Funds from Northern Trust says, "Citibank Online Investments is pleased to announce the addition of the Northern Institutional Funds, U.S. domestic institutional money market funds. Citi offers clients access to more than 150 institutional funds, including U.S. dollar denominated domestic (U.S. registered), offshore (non-U.S. registered), tax exempt, tax-efficient, government/Treasury and non-dollar currency (Euro, Sterling) funds through a single channel, making it easier and more efficient for companies to manage their liquidity. With the convenience of Citibank Online Investments, existing clients will automatically have access to these new funds from the 'Fund Info' page. No additional paperwork is required.... Citibank Online Investments is a global, secure, web-based investment service accessible via CitiDirect Online Banking, Citi's web-based cash management system and TreasuryVision, Citi's award-winning information and analytics service."
Finally, a statement entitled, "SWIP Euro Liquidity Subfund Assigned 'AAAm' Principal Stability Fund Rating," says, "Standard & Poor's Ratings Services said today that it assigned its principal stability fund rating of 'AAAm' to the Dublin-domiciled Euro Liquidity Fund, a subfund of SWIP Global Liquidity Fund PLC, managed by Scottish Widows Investment Partnership Ltd. (SWIP). The rating reflects our view that the subfund has an extremely strong capacity to maintain principal stability and to limit exposure to principal losses due to credit risks. In our opinion, based on our current understanding of the implementation of the investment policy and the strategy of the asset managers, the subfund will maintain strong credit quality standards by investing exclusively in securities or with counterparties rated at least 'A-1' by Standard & Poor's, or deemed by us to be of equivalent credit quality. We also understand that, consistent with our criteria, to enhance the portfolio's liquidity and diminish sensitivity to changing interest rates, it is the current intention of the asset managers to maintain a weighted average maturity of 60 days or less."
It adds, "SWIP established the subfund in 2003 to offer institutional and corporate investors a high level of current income and daily liquidity, as is consistent with the preservation of capital. In our opinion, the subfund will be managed by an experienced team of investment professionals, at Edinburgh-based SWIP, which is responsible for managing approximately L16 billion of money market assets, and is the asset management division of Lloyds Banking Group PLC."
