On Friday afternoon, CNBC's "Street Signs" ran a segments entitled, "Is Your Money Market Fund Safe?" which discussed money funds' exposure to European banks and which featured Crane Data President Peter Crane. The introduction to the story, by Kate Kelly, said, "Now to a financial fear that could bring the Greek crisis right back to Main Street USA. Money market accounts [funds] here in the states are worth nearly $3 trillion and managers have been investing in European banks and they say they're going to keep on doing it.... Kate, do the money market funds really know what they're getting into here?" (See also, CNBC's "Is Your Money Market Fund Safe?.)
Kelly says, "They would of course say yes, Mandy. Something like 50% of the big funds are invested in Europe. About 7 out of the 10 of their major asset plays are European names. They would say they're focused on the core, whether it's France, Germany or UK, have never been in Greece, have not been in those peripheries for quite some time now. They would even say we've done our own credit research based on the stress test of last summer and we feel comfortable with the French bank's exposures to Greece, for example. Having said that, there are a couple of questions here. Certainly they're looking for yield, and there may be higher yield available in Europe than there is say in the U.S. There's more supply as well of European paper than there is of Asian paper. However, do they really want to be involved in these names?"
CNBC's Mandy Drury says, "Let's bring in money market analyst Peter Crane, president of Crane Data. What's your take on all this, Peter? How much should we be worried with regard to the money market funds and their exposure to the European banks?" Crane answers, "Money funds are clearly watching the situation closely. They've never invested in Greece so they don't have any direct Greek exposure, and they do have heavy holdings of French banks. There's no doubt about that. But they're only investors in the largest, the systematically most important. These banks have $1 trillion of reserves on their balance sheets, so the odds of them defaulting or losing liquidity any time soon are slim to none."
The piece continues, "Peter, how confident are you in what the money market funds are investing in?" Crane responds, "They've gotten smarter, they've gotten more liquid. Banks are gotten more liquid as well. You're not going to see the leverage of a Lehman Brothers. Comparing this to Lehman Brothers is a long stretch. The landscape was littered with bombs and defaults.... They've been invested in Europe for many years now and may be tip-toeing back, but they're not exactly stampeding away."
Kelly also asks, "With all due respect to the money market funds and research they've done already, do we even know enough, are there enough facts out there about this European financial paper in order to make qualified judgments?" Crane comments, "The bulk of these [assets] are now straightforward, plain vanilla CDs. So the esoteric securities that had been growing in the markets in the '90s, I mean pieces of those are gone entirely. So things are a lot more transparent and a lot more straightforward.... The money funds that I've talked to over the last couple of days -- certainly they may be shortening maturities and letting some of the maturing paper roll off -- but they're still comfortable with the large, systematically important European credits."
Drury asks, "Are you at all fearful we could see nervous investors selling out of money market funds? Quite often this just has to do with confidence as opposed to the facts." Crane responds, "That's the key. Our data shows money funds have seen tiny inflows the last three days. There is a very modest shift out of Prime money funds and into Treasury money funds in the last few days. But investors have heard this story three or four times before and they haven't blinked, so there is no reason to think they'll blink this time."
See also, WSJ's (Blog) "Smart Money Lightening up on Money Funds Exposed to Europe?". Also, look for our latest asset totals in today's Money Fund Intelligence Daily and look for coverage of last week's Crane's Money Fund Symposium later this week and in the upcoming issue of Money Fund Intelligence.
