Fitch Ratings released a statement Friday, saying, "A review by Fitch Ratings concludes that European exposures do not, at this time, pose rating concerns for rated money market funds (MMFs). At this time, MMFs rated 'AAAmmf' maintain high credit quality exposures to banks located in the 'core' European countries of France, the United Kingdom and Germany, focusing mainly on systemically important entities rated 'F1+' and limiting the weighted average maturities of their portfolios." Fitch says these "direct exposures do not pose near-term concerns."
The release says, "As of May 31, 2011, Fitch rated 54 U.S. and European 'prime' MMFs, whose investment policies permit investments in securities issued by financial and non-financial entities. Combined assets under management of these prime MMFs were approximately $823.9 billion (the list of Fitch-rated prime MMFs can be found on Fitch's website). Fitch-rated prime MMFs, on average, allocated 20.3% of their total assets to French issuers and 15.4% and 7.5% of their total assets to issuers headquartered in the United Kingdom and Germany, respectively. These allocations include direct and indirect exposures gained via investments in asset-backed commercial paper backed by liquidity lines provided by respective banks. Collateralized exposures to respective entities acting as counterparties in repurchase agreement transactions are also included in the tallies."
Fitch explains, "Exposures to Europe were diversified among large, financially stable banks with international franchises. Many of these banks are systemically important entities that should be well positioned to manage their own exposures to peripheral Europe, especially Greece, as discussed in 'Major French Banks' Exposure to Greece' and 'German Banks' Exposure to Greece'. For example, investments in BNP Paribas ('AA-/F1+') accounted for 5.3% of Fitch-rated prime MMFs' total assets. French banks Societe Generale ('A+/F1+') and Credit Agricole ('AA-/F1+') accounted for 4.5% and 3.9% of the funds' total assets, respectively. Amongst the UK issuers, the largest allocation of 5.5% of total assets was to Barclays Bank ('AA-/F1+') followed by 3.6% of the funds' assets invested in Royal Bank of Scotland ('AA-/F1+') and 3.5% in Lloyds TSB Bank ('AA-/F1+'). German Deutsche Bank ('AA-/F1+'), Commertzbank ('A+/F1+') and Landesbank Hessen-Thueringen ('A+/F1+') accounted for 3.8%, 0.8% and 0.4% of the Fitch-rated MMFs' assets, respectively."
The update adds, "Fitch notes that these MMFs have taken proactive credit and liquidity risk management actions in response to the ongoing market volatility. As of the end of May 2011, rated MMFs maintained an average weighted-average maturity to reset date of 37 days and an average weighted-average maturity to final maturity date of 54 days indicating relatively low interest rate and liquidity risk. Moreover, these MMFs generally restrict the final maturity of any European exposures to 90 days or less. A shorter investment horizon, absent excessive redemption activity, should allow MMFs to exit specific 'at risk' credits in an orderly fashion via natural runoff rather than a forced sale of the security."
Finally, Fitch comments, "The data presented in this commentary is based on portfolio holdings provided to Fitch as part of its regular surveillance process for rated MMFs. The data represents reported portfolio holdings as of end of May 2011 and, as such, may not reflect funds' more recent (or future) portfolio composition or allocation.... Fitch will continue to monitor MMF exposures to sovereigns or financial institutions in Europe as well as shareholder redemption activities. While exposures seem manageable at present given the high credit quality overall, an abrupt deterioration could challenge MMFs' ability to exit at risk exposures and maintain preservation of capital. Fitch will comment further as warranted, including in the agency's quarterly money market fund special report."
